Choppy Waters: S&P 500 Will Trade In This Range Over The Next 3 Years, Says Market Veteran

Bill Harnisch, Chief Investment Officer at Peconic Partners said the benchmark S&P 500 is going to trade in a range of 3,500 and 4,400 in the next 18 to 36 months, as persistent pricing pressures are going to force the Federal Reserve to keep rates elevated for a significant amount of time.

What Happened: Stocks may rally, only to fade when investors grasp that rates will stay higher for longer, according to Harnisch, who used his 15-month-old prediction that inflation would skyrocket to generate 29% gains for his fund this year. He also mentioned that earnings are likely to decline.

“Rates will be sticky. And with the S&P at 19 times earnings, it’s going to be tough for the index to be doing much,” Harnisch said, according to Bloomberg. “It’s going to be a pretty broad trading range,” he added.

Harnisch and his team observed a rise in wage growth in September 2021, which triggered his foresight that inflation would soar.

Read also: Larry Summers Says Fed Will Have To Suffer Through A Recession If Inflation Is To Be Brought Down

The market veteran spotted warning signs that wage inflation would remain in place, even though the Fed mostly dismissed it as transitory. The policmakers later had to quickly change their zero-interest rate policy.

Harnisch’s fund doubled down on its bearish outlook at that time, shorting shares of tech companies and pandemic darlings like Carvana Co. CVNA, and Wayfair Inc. W.

With shares of Carvana and Wayfair down over 80% year-to-date, helped by the central bank’s rush to raise interest rates, Peconic’s short positions on those companies paid off.

Why It Matters: Peconic started reducing stock exposure as the S&P 500 failed to break through the 4,100 level after increasing net leverage to 50% during the most recent market recovery, the upper end of its usual range. On Thursday, the firm's leverage was close to 30%.

“With the tape the way it is, it’s starting to discount some of the earnings challenges,” Harnisch said. “We’re very comfortable pulling back now and seeing how low it goes.”

The CIO said his firm is looking to short cable-services providers, advertising firms and retailers next.