SPY and QQQ could plunge further in 2023

Piper Sandler has joined a long list of analysts and investors who are bearish on the stock market in 2023. The stronger-than-expected inflation numbers reinforced their view that the recent recovery could be a bear market rally after all. Therefore, there is a likelihood that the Invesco QQQ and SPY ETFs could be in a rough ride.

Piper Sandler warns on stocks

In a statement after the strong US inflation numbers, Piper Sandler’s Michael Kantrowitz warned that the S&P 500 could crash to $3,225. This price is about 22% below where the index is trading at today. He pointed to the fact that the Fed is set to continue hiking interest rates later this year.

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Most importantly, he pointed to the fact that banks have continued to tighten their lending, As such, higher inflation, low unemployment rate, weak corporate earnings, and a hawkish Federal Reserve have always come ahead of a major recession.

Another key factor that signals that a recession is coming is the yield curve. Bond market data shows that the yield curve has inverted to the lowest point in over 20 years. In most periods, a major recession usually comes a few months after a major yield curve inversion. He said:

“We expect a recession later this year as the unemployment rate rises. At the same time, credit spreads will continue widening as stocks move to a bear market.”

Jeremy Grantham is also bearish on equities

Piper Sandler is not the only market bear in the market. Recently, Jeremy Grantham, the respected founder of GMO, warned that the S&P 500 index could tumble to about $3,200, just $25 lower than Piper Sandler’s estimate. And in a statement on Monday, JP Morgan said:

“With equities trading near last summer’s highs and at above-average multiples, despite weakening earnings and the recent sharp move higher in interest rates, we maintain that markets are overpricing recent good news on inflation and are complacent of risks.”

Meanwhile, Nigel Green, the CEO of deVere said:

“I think investors will, sensibly, be prepared to look through any near-term squalls on inflation and interest rate news. Instead, rightly, they will be focused more on earnings. Fourth-quarter 2022 earnings have fallen from a year ago, now a decline in the first quarter of 2023 would push the S&P 500 into an earnings recession.” 

Therefore, if these analysts are accurate, we could see the SPY stock crash by over 20% from the current level. If this happens, Invesco QQQ will likely fare much wors in a high-inflation environment.