The Dow Jones Industrial Average fell over 1,000 points or 3%, while the NASDAQ Composite fell 4% and the S&P 400 over 3% one day after the Federal Reserve raised interest rates by a half a point for the first time in two decades and as Chairman Jerome Powell signaled the economy can avoid a recession.
|I: DJI||DOW JONES AVERAGES||32997.97||-1,063.09||-3.12%|
|I:COMP||NASDAQ COMPOSITE INDEX||12317.691246||-647.16||-4.99%|
The Fed raised its key rate to a range of 0.75% to 1%, the highest point since the coronavirus pandemic struck two years ago.
Late last month, Ghabour told host Stuart Varney that he believes the market will be down 20% in the 2nd quarter, potentially leading to a crash.
He clarified on Thursday his definition of the word “crash” to mean “well over a 20% drop in the broader market.”
“If you look at a lot of individual securities, they are crashing,” he added.
“The darlings of last year, many of them are down over 50%,” he continued, noting that “people keep trying to find the bottom” and that he doesn’t think “we are there yet.”
Ghabour said that he believes the CBOE Volatility Index, or vixwhich is the most recognized tool to trade financial market volatility, needs to hit “the 40s before we can capitulate.”
Traders often refer to the VIX as the so-called “fear gauge” because it rises when fear is prevalent in financial markets.
The VIX soared more than 21% to 30.81 on Thursday afternoon.
When asked why he believes markets have not hit the bottom yet, Ghabour said one reason is because “the mega-cap tech stocks still have not taken the beating that I believe they should.”
Mega-cap stocks are those of companies with market values well above the rest of the market, with valuations totaling over $200 billion, such as Apple and Amazon.
Ghabour noted that some of the larger cap tech stocks “are only down maybe 12 to 13%.”
He also noted that the S&P 500 is down about 13% in 2022, which “is not a bear market.”
“We are going to need to get at least 20%,” I argued.
Ghabour further explained his rationale as to why he believes markets have not hit bottom, telling Varney “the Fed was extremely hawkish yesterday.”
“I know the narrative said they weren’t, [but] they [the Fed] just told us they are going to raise [rates by] 50-basis points three times [and] the market can’t handle that,” Ghabour continued.
During a news conference, Powell rebuffed any suggestion that a mega-sized, 75-basis point increase is on the table at future meetings.
“I think we have a good chance to have a soft or soft landing or outcome, if you will, I’ll give a couple of reasons for that. One is households and businesses are in very strong financial shape,” Powell said.
“It’s a strong economy and nothing about it suggests that it’s close to or vulnerable to a recession,” he added.
Ghabour told Varney on Thursday that he believes the US is “not in a strong economy,” contrary to what Powell argued the day before – especially given the impact of inflationary pressure on families.
“The narrative continues to be that the economy is strong. I completely disagree with that,” he said. “I think the economy is very fragile.”
“The economy is slowing down at a very fast rate and when you tighten monetary policy at the same time, that is when you have these major drops in risk assets,” said Ghabour. “I feel for the folks who have ridden it all the way down, but those who think it can’t get any worse, I think they are going to be sorely mistaken, unfortunately.”
He also argued that the middle class is going to get “really squeezed” by the current inflationary environment.
Inflation accelerated to a new four-decade high in March and price hikes were widespread with energy prices rising a staggering 11% in March from the previous month, and are up 32% from last year.
Gasoline, on average, costs 48% more than it did last year after rising 18.3% in March on a monthly basis as the Russian war in Ukraine fueled a rapid increase in oil prices.
Last month, the Labor Department said that the consumer price index (CPI) – which measures a bevy of goods including gasoline, health care, groceries and rents – rose 8.5% in March from a year ago, the fastest pace since December 1981, when inflation hit 8.9%. Prices jumped 1.2% in the one-month period from February, the largest month-to-month jump since 2005.
The inflation data for April will be released next week.