The market selloff (or bubble) is showing no sign of abating (or deflating) as U.S. stock index futures continue to stumble. Contracts linked to the Dow (DJI) and S&P 500 (SP500) are off another 1.6% in early trade on Thursday, while the Nasdaq (COMP.IND) is down a further 2%. Worries are particularly intensifying with the S&P 500 benchmark index on the brink of a bear market, down more than 18% from the all-time high reached last November.
What happened yesterday? Investors were already nervous after Walmart (WMT) raised the earnings alarm earlier this week, but those fears were compounded on Wednesday as Target (TGT) upped the threat level by a few notches. Shares of the discount chain slumped 25% as Q1 results came in far from the bullseye, hammering the entire retail sector from Costco (COST) and Dollar Tree (DLTR) to merchandise haulers like Saia (SAIA) and Old Dominion Freight Line (ODFL). Things then spiraled into a broad market selloff, with the Dow Jones (DJI) plunging almost 1,200 points, and the S&P 500 (SP500) and tech-heavy Nasdaq (COMP.IND) tumbling 4% and 4.7%, respectively.
"The other day we were down 19.9 on the S&P and about 27 on the Nasdaq," legendary fund manager Jeremy Grantham told CNBC. "I would say that at minimum we are likely to do twice that and if we are unlucky, which is quite possible, we will do three legs like that and it may take a couple of years, as it did 2000. This bubble superficially looks like very much like 2000, focused on U.S. tech, led by Nasdaq going to incredible highs."
"We should be in a recession, mild or severe, is the question," he continued. "But we should be in some sort of recession fairly quickly and profit margins, from a real peak, have a long way that they can decline. I think this kind of 2000 bubble that we had is dangerously likely to morph into the 1970s, where inflation is always a part of the background discussion and where growth rate starts to dwindle away." Note that while Grantham's resume includes predictions of the market crashes in 2000 and 2007, the permabear has been predicting epic crashes for much of the last decade, leading some to reference the famous saying "even a broken clock is right twice a day."
Next moves? Forecasts for market direction through the end of 2022 span the gamut, but all agree that the Fed will have to fight off stagflation fears before things can turn around. "What's clear to me is that there is no market put, and I think we're all waking up to that fact now... we're going to be meaningfully lower this year in stocks before we find a bottom," said Guggenheim Partners Global Chief Investment Officer Scott Minerd. "We can climb out of this hole," countered Marko Kolanovic, co-head of global research at J.P. Morgan. "There will be no recession this year, some summer increase in consumer activity on the back of reopening, China increasing monetary and fiscal measures."