The recovery seen after the mid-June lows led analysts and investors into believing that the market may have bottomed. It was not to be, though. What Happened: Following a nice rebound that lasted until mid-August, the market has hit another rough patch amid interest rate worries.
An analyst now anticipates more pain ahead in the coming months.
Stocks could be in for another 20% drop by mid-October, according to Scott Minerd, chief investment officer at Guggenheim Partners. He based his prediction on S&P 500 Price/Earnings multiple historically trending lower when inflation is higher. The annual change in the core price consumption expenditure index is currently at 4.6% and the S&P 500 is currently trading at 19 times.
Sharing a graph comparing the historical S&P 500 price-to-earnings (P/E) ratio during different inflation environments, Minerd noted that the P/E multiple for a 6%, plus, inflation environment is around 9.1 times, which is more than double that of the 19 times seen currently.
Why It's Important: It is “stark to see the price-to-earnings ratio where it is,” as the market enters September and October, historically the worst time for the market Minerd later said in an interview with CNBC, according to Seeking Alpha.
The situation would become graver if earnings began to come down further, he said. He did not rule out the possibility, given the economy "may very well already be in a recession." The analyst expects downward pressure on sectors such as energy, which has seen a decline in prices.
Price Action: The SPDR S&P 500 ETF Trust SPY was seen trading up 0.73% at $403.32, according to Benzinga Pro data.
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