According to Bank of America, a strong jobs data indicates that inflation will persist and the Fed will continue tightening, causing the stock market to drop 13% and reach a new bottom for the year

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Last Updated on August 6, 2022 by Bitfinsider

According to Michael Hartnett of Bank of America, the stock market is likely to see a new low in 2022 because investors are increasingly reading economic data as bad news rather than as good news.

In a letter published on Friday, Hartnett predicted that a robust July employment report with more than 400,000 new jobs would send the stock market down during the following four weeks. In the end, the July employment data showed a gain of 528,000 new jobs, above economist expectations as the economy continues to show its resilience.

After the July jobs report was released, the S&P 500 dropped 1% immediately before somewhat recouping its losses. Hartnett predicts that the S&P 500 will eventually trade below 3,600, which would imply a potential decline of 13% from current levels.

Because of the positive jobs data, rising inflation is likely to persist longer than most anticipate, forcing the Federal Reserve to stick to its current course of swift interest rate increases at the next Federal Open Market Committee meeting in late September.

The August jobs report, two CPI reports, and other data will help the Fed determine whether or not it needs to increase interest rates by another 75 basis points to combat inflation between now and then.

Recall that in July, Fed Chairman Jerome Powell stated that the Fed would not predict future plans for rate hikes going forward and would instead only focus on incoming data to make its decision, leaving the door open for a potential pivot. This statement is what gave rise to the recent 14 percent rally in the stock market.

According to Hartnett, expect additional interest rate increases if the economy remains robust and inflation endures, which will finally send the stock market plunging.

However, given that the US economy has created more than 3 million new jobs thus far this year, which has helped lower the unemployment rate to only 3.5 percent, a recession is less likely. In the meanwhile, unemployment insurance claims are still very low. An economy that is close to entering a recession is not typical of the strength in the labor market.

However, Hartnett predicts that high inflation and moderate economic growth will lead to stagflation, which will return in the fourth quarter of the year and offer investors a significant short opportunity.


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Disclaimer: The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, legal, tax or other advice. Investing in or trading cryptocurrency or stocks comes with a risk of financial loss.


Hardware wallets are safe and secure devices that can be used offline. They keep your cryptocurrency offline, making it impossible for you to be hacked. To find out more on the leading hardware wallets, you may view our reviews here: Ledger & Trezor
Disclaimer: The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, legal, tax or other advice. Investing in or trading cryptocurrency or stocks comes with a risk of financial loss.

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