Fri, June 3, 2022 | 5:26PM ET

My Work Suggests More Downside Ahead Array ( [cookie] => 460b93-ac4cce-e33761-b1ea8c-9e03d7 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 2 [max_usage_crypto] => 2 [lock] => 1 [message] => [error] => [active_member] => 0 [subscriber] => 0 [role] => [visitor_id] => 187188 [user_id] => [reason] => [method] => ) 1 and can accesss

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Fed Vice Chairperson Lael Brainerd’s comments on Thursday supported the hawkish thesis I’ve been repeating for many months, and arguably took the quick end to Fed tightening off the table for now. Despite a few glimmers of hope and some evidence that headline inflation has peaked, the latest readings remains well above the central bank’s target level. Hence, I reiterate my expectation that the inflation fighting actions from the FOMC will likely remain in place until there is irrefutable trend that progress has been achieved. Notably, the hawkish Fed is converging with other risks and a weakening indicator backdrop is portending that there’s a high likelihood that there is more downside for the S&P 500 in front of us. Additionally, my proprietary earnings revisions work is flashing a worrisome signal that a profit cutting cycle by Wall Street analysts is slowly occurring and much more is yet to come, which will likely hit all things cyclical the most. Ugh, the road ahead remains filled with challenges before the equity markets have a chance to get back to a smoother path based on my work.

Another wrinkle that hasn’t been front center is the negative impact that the strength in the U.S. dollar is going to have on corporate profits as the greenback is up nearly 15% yr/yr. Indeed, Microsoft may have been the canary in the coalmine for FX risk as the announced a nearly $500mm shortfall for its next quarters operating results. The strong dollar will surely hurt the earnings of many large-cap companies with international footprints. Based on my analysis, I expect further declines in earnings revisions, and investors should keep this in mind before chasing any rallies too aggressively.

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