Investing 11-11-2022 18:28 13 Views

Pro: ‘S&P 500 in a recession is fairly valued at 2,800 to 3,200’

S&P 500 is breathing a much-awaited sigh of relief after the monthly inflation data came in better than expected (read more). But there’s hardly a reason to believe that it’s not just another one of the bear market rallies, says Dutch Masters – the Founder of Carnivore Trading.  

Masters sees hardcore recession ahead

Despite the economic news, Masters is convinced that the Federal Reserve is unlikely to slowdown since the CPI at 7.70% is still well above its 2.0% target.

Consequently, he sees a possibility of a hardcore recession, which could push the benchmark index down as much as 20% from here. Speaking with TDA Network’s Nicole Petallides, Masters said:

Fed wants to see labour market cool and they’re about to see it cool in a big way but that means a lot of people will be out of work. Consumption will drop off. I’ve always said the S&P 500 in a recession is fairly valued at 2,800 to 3,200.

S&P 500 is still down nearly 18% versus the start of the year.

One month of positive data is not enough

His dovish view is predicated on a simple question, “how much does one month of data really mean?”, both for the central bank and the markets.

After all, the Fed is pattern-dependent. So, if inflation doesn’t cool off persistently, month after month, the S&P 500 will eventually go back down, he added.

What happens if the consumer price index prints at 8.3% again next month? Market is in a downward sloping channel. So, until I see the Fed make a move different than what they’ve been doing, [I’m not] a believer.

He does, however, sees opportunity here in Biotech. One of his top picks in this space is Halozyme Therapeutics Inc (NASDAQ: HALO) that Masters says could easily double from here.

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