The S&P 500 is now poised for its worst first half since Richard Nixon’s presidency.
With just seven trading days left until the end of June, the index is down 21pc since the beginning of the year amid expectations that a toxic mix of high inflation and a hawkish Federal Reserve will tip the US economy into a recession. The last time the S&P 500 had fallen this much during the first six months of any year was in 1970, according to data compiled by Bloomberg.
A 1970s-style inflation shock could send the index crashing about 33pc from current levels to 2,525 amid stagnation with higher inflation, according to Societe Generale strategist Manish Kabra.
The key read-across from the 1970s is the risk that if investors start to believe that inflation will stay high for longer, equity markets begin to focus on real instead of nominal earnings-per-share rate, which for this year is likely to be negative, SocGen said.
The S&P 500 sank into a bear market at the start of last week before rebounding strongly on Tuesday, however, US futures on Wednesday signalled that the bounce may be short-lived.
Traders are bracing for Fed Chair Jerome Powell’s Senate testimony, where he is expected to reinforce the commitment to fighting price pressures.
According to a calculation by Deutsche Bank, not since 1788 have US bonds fallen so much.