New Lows in 2023 on the Back of Volatility Event

  • The stock market is poised to plunge to new lows in the first half of 2023, according to Fairlead Strategies’ Katie Stockton.
  • Stockton told CNBC on Tuesday that a “volatility event” could send the VIX soaring to 50.
  • “The seasonal influences are sort of petering off here in terms of that Santa Claus rally, so we’re losing that tailwind,” Stockton said.

Investors should brace for more pain in 2023 if a forecast from Fairlead Strategies’ co-founder Katie Stockton proves correct.

Stockton told CNBC on Tuesday that she expects a “volatility event” to plunge the stock market to new lows in the first half of 2023, as the VIX Index, known for measuring fear among stock market investors, punches through resistance in the mid-30s and soars to as high as 50.

“We’re looking for a volatility event potentially this month into next month. The seasonal influences are sort of petering off here in terms of that Santa Claus rally, so we’re losing that tailwin,” Stockton said.

While Stockton didn’t theorize what fundamental factors could be behind a volatility event, plenty of Wall Street strategists remain concerned about stubbornly high inflation, the Fed continuing to hike interest rates, and the likelihood of companies seeing an earnings recession.

Stockton sees an 80% chance that the stock market falls to new lows in 2023, and said “new highs are not likely this year” as the market consolidates and finds its footing from last year’s steep sell-off.

“I do expect this year to be an inflection year, and that makes it really hard to predict where we might see the S&P 500 at year-end,” Stockton said. “But we do look for some kind of major low to be established on the back of a volatility event… maybe in the next four to six months.”

Of course, there is a chance hat instead of plunging to new lows the stock market simply chops sideways and consolidates. But Stockton doesn’t see that as a likely scenario because capitulation is usually what’s needed to end a bear market.

“It could be sideways action. I think it’s less likely though because I do think that the market needs that kind of capitulation that tends to be associated with bear market lows,” Stockton said.

“We need that volatility event. We need the VIX perhaps even close to 50 before we can really get out of this down trending mode. The long-term momentum is still very much to the downside.”

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