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Why the Bull Market Rally Won't Last: BNY Mellon Strategist

By Dinah Wisenberg Brin

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What You Need to Know

  • S&P 500 could fall under 4,000 and test October lows in a recession, Jake Jolly said.
  • Investors should pick their spots, he said, urging caution.

Jake Jolly, BNY Mellon Investment Management’s head of investment analysis, urged caution Wednesday in response to the recent stock market rally, citing lagging sectors and the institution’s expectations for a recession.

In a recession, the S&P 500 could fall below 4,000 and test its October lows, he said on CNBC’s “Squawk Box.”

“We are certainly cautiously optimistic, is kind of the nicest way that I can put it,” Jolly said. “We’re very skeptical that this is a sustainable new bull market rally.”

He called the rally “very narrow” and noted financial stocks are lagging. While the equal-weighted S&P 500 index has started to improve, it has lagged much of this year, especially since the regional banking crisis in March, Jolly said.

Market dynamics, paired with BNY Mellon’s near-term macro-economic expectations, drive the firm’s skepticism about a bull market, he said.

“We think that you need to be very cautious about this rally and definitely pick your spots. This is not the time to sort of just blindly buy the index,” Jolly said. “This is unlikely to be the start of the next bull market. … We think that there is going to be pressure on equities in the near term.”

BNY Mellon Investment Management believes the recession probability is “quite a bit higher” than an economic soft landing, Jolly said, adding that to buy into the rally, an investor would have to believe the soft landing probability is well above 50%. “We don’t think it is,” he said.

“We do think that in a recessionary environment, we’re going to break below 4,000, potentially testing those October levels,” Jolly added. The S&P 500 index hit 3,491.58, its 52-week low, on Oct. 13.

So what should investors do with the S&P 500 recently in the 4,380 neighborhood?

“You stay in, but maybe you don’t buy into certain parts of the market,” Jolly said. ”The reality is that market timing is very, very difficult. To be a successful long-term investor, it’s more about being in the market than it is about trying to get these very short-term tactical decisions right.”

Photo Credit: Adobe Stock

Dinah Wisenberg Brin

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