Well-known investor Carl Icahn recently said the rally observed last week did not change his negative view of the market. He believes the recession will cause many investors to suffer losses if they behave recklessly and now invest in stocks and other risky assets. "And although we hedge our portfolio quite strongly, I still bet on the development of a bear market and expect several negative economic changes. The observed rally will eventually become very dramatic. I still think we are in a bear market," Icahn said in an interview.
It is worth recalling that the US stock market recovered sharply after the October data on consumer prices turned out to be better than economists' forecasts, forcing the market to say again that inflation has reached its peak. In one trading session, the Dow Jones industrial average jumped by 1,200 points, showing the largest one-day gain since May 2020. The S&P 500 index jumped 5.5%, the biggest rally since April 2020.
According to Icahn, large rallies in the bear market often occur due to the active interest in short positions that arose during the downturn. While the inflation report showed some signs of easing, the founder and chairman of Icahn Enterprises believes that price pressures are stronger than many think due to continued wage growth. "Inflation will not disappear, at least in the near future. It will be maintained due to high wages, spur spending and stimulate inflationary pressure."
According to the latest data, the consumer price index rose by 0.4% for October and 7.7% compared to last year, while economists expected growth of 0.6% and 7.9%. This will also affect the Federal Reserve System, which is conducting a series of aggressive interest rate hikes to reduce inflation, which has reached its highest level since the early 1980s.
Bank of America shares approximately the same idea. A recent report for November shows that most of the bank's economists and fund managers remain "super bearish" since investors are still focused on dollars and cash, and shares of technology companies, which are risky assets, are not of interest to them yet.
As long as the yield of 10-year bonds remains at such a high level, and as long as there is at least the slightest chance of continued growth, large players will invest in them in the hope of surviving high inflation and making money on it.
As for the technical picture of the S&P 500, the market stabilized a little after yesterday's sharp collapse at the end of the day. The main task for buyers now is to protect their support of $3,968. While trading will be conducted above this level, we can expect continued demand for risky assets. This will create good prerequisites for strengthening the trading instrument and returning $4,000 to control. The level of $4,038 is located slightly higher. A break in this area will strengthen the hope for a further upward correction with an exit from the resistance of $4,064. The most distant target will be $4,091. In a downward movement, buyers must declare themselves at $3,968. A breakdown of this range will quickly push the trading instrument to $3,942 and open up the possibility of updating the support at $3,905.
