American billionaire Ray Dalio, founder of Bridgewater Associates, has issued a bleak outlook for stock markets and the US economy as a direct result of unprecedented high levels of inflation.
According to Arab Net, Dalio expected interest rates to rise to the higher range between 4.5% and 6%, which would lead to a 20% decline in stock prices.
It should be noted that the S&P 500 index is heading for the largest losses since 2008.
Wall Street closed higher on Wednesday, after a report on producer price inflation, which came in line with expectations and largely halted the outpouring of sales that swept the market in the previous session.
The three major US stock indices fluctuated throughout the session before closing in positive territory.
But they all failed to recoup much of their losses in Tuesday's carnage, which had the largest percentage declines in more than two years.
The producer price index reassured the market that inflation is in fact on a slow downward curve, but it still has a long way to go before it approaches the 2% annual level targeted by the US central bank.
The benchmark two-year US Treasury yields, which reflect interest rate expectations, continued to rise, consolidating their gains from the previous session.
A report issued by Morgan Stanley predicted a further decline in US stock markets over the next few months.
The report expected the (S&P500) index to decline by 17% to 27% within the next 4 months.
The S&P 500 is already down 14% year-to-date, but Morgan Stanley believes the market hasn't bottomed yet.
A team of Morgan Stanley analysts, led by Mike Wilson, wrote in a recent note to investors: 2022 now represents a modest earnings contraction (-3% annual growth), although we do not include a recession in this scenario.
Analysts added, Acknowledging the weak performance in stocks year-to-date, we don't believe that the bear market is over if our earnings forecasts are correct.
Analysts expect the S&P 500 to fall to 3,400 by the end of the year.
And in the event of a recession in the economy, they say the benchmark could drop to 3,000 points.
Given that the S&P 500 is around 4107 at the moment, Morgan Stanley forecasts a further decline of 17% to 27%, analysts say.
Despite the pessimistic forecasts, Morgan Stanley analysts believe that Wall Street will still retain some strong and attractive stocks, including (LLY), a giant American pharmaceutical company with a market value of about $300 billion, with its products marketed in 120 countries around the world.
