Don’t Relax! Market Volatility May Not Be Over Yet

Analysts point out that few asset classes have priced in the adjusted probability of a recession.
Recently, concerns about a US economic recession, bleak corporate earnings reports, and exchange rate fluctuations have hit the US stock market. While investors seem to have regained their composure, experts warn that the turmoil may not be over yet.
In a subtitle of his latest research report, Paul Dietrich, Chief Investment Strategist at B. Riley Wealth Portfolio Advisers, wrote, "The stock market finally seems to be correcting." He attributed the "massive sell-off in stocks" to "fears of an impending US recession" triggered by deteriorating economic data and warned that the S&P 500 could ultimately fall 40% from its recent highs.
This week, Peter Oppenheimer, Goldman Sachs' Head of Global Equity Strategy, noted that anxiety remains in the market, which could trigger further volatility.
Oppenheimer said, "My sense is that while this correction is stabilizing, it’s not over yet. As investors begin to recalibrate and rebuild confidence in interest rates and the direction of the economy, I think we’ll still see some ups and downs in the market environment in the short term."
Many investors hope that the market downturn and increasing signs of economic weakness will prompt the Federal Reserve to start cutting interest rates, thereby boosting asset prices. However, veteran economist David Rosenberg warns investors not to relax if this happens.
Rosenberg noted that recessions occurred within months after the Fed began interest rate cutting cycles in January 2001 and September 2007. In both cases, the S&P 500 fell approximately 40% and 50%, respectively, over the following years.
Rosenberg said, "Now you know where the term 'bull trap' comes from."
He also pointed out that economists at JPMorgan Chase recently increased their probability of a recession this year from 25% to 35%, while Goldman Sachs