The bear market will drag on until inflation subsides and investors should brace for earnings cuts next quarter, according to the investment chief at a $1.2 trillion asset manager
- The S&P 500 has yet to bottom, said Nuveen investment chief Saira Malik.
- The benchmark index is on track to end its worst first half of the year since 1970.
The bear market will drag on until inflation begins to recede, said Nuveen's Saira Malik, investment chief of the $1.2 trillion asset management firm.
Although the S&P 500 is about to end its worst first half of the year since 1970, Malik thinks the market has more room to fall, given that consumers are still pulling back on spending. The US Consumer Confidence Index fell 4.5 points during the month of June, and consumer spending data just released for May showed the first drop in expenditures all year.
"That was most likely a bear market rally that we saw, and we don't think the S&P has bottomed at this point," Malik said in an interview with Yahoo Finance. She warned further that companies with weak pricing power would continue to be slammed by inflationary pressures in the second half of the year.
"I think the bear market can't end until inflation shows consistent signs of moderating."
Luckily, inflation is showing some signs of slowing. Core inflation, which strips out food and gas prices, cooled more than expected in May, and there is some calm being shown from other indicators as well. The five-year, five-forward – a predictor of five-year inflation, five years from now – has held steady at 2% for most of the past year, though Malik thinks the Fed is still a long way away from hitting pause or slowing its rate hikes.
Companies, at least, are still feeling the heat. Yesterday, the New York Fed's Corporate Bond Market Distress Index measured investment-grade corporate debt as having a distress level of 3.6, more than double from the distress level of 1.6 measured in June of last year, the Wall Street Journal reported. The economic pressures companies are facing, in other words, are spiking.
"We're worried about companies' forecasts for the second half of this year … I think this is just the beginning of earnings estimate cuts," Malik said, a warning for investors to brace themselves as economic conditions continue to shift.