Questions the market impact of a potential 'hawkish cut' by the Fed and the unclear path for future rate cuts.
Frank
Craig Johnson
A hawkish cut with no roadmap for future cuts could disappoint the market, compressing the top side and preventing another big leg higher, leading to consolidation.
Asks if the cut should help cyclical stocks and which parts of the market (mega-caps) would see compressed upside.
Frank
Craig Johnson
Major averages (Dow, S&P, tech stocks) likely won't get another big leg higher if the Fed message is hawkish. A cut should help mid and small caps. The Mag-7 stocks will likely continue to lag.
Notes Johnson's S&P 2026 target of 7150 (~4% rise) and questions if historical trends of weak returns after three strong years are a concern, suggesting it might be time for consolidation or a pullback.
Frank
Craig Johnson
2026 will likely be a year of higher volatility, with strength in the first half and a significant drawdown in Q3 ahead of midterm elections. The bull market remains intact but expectations should be recalibrated to mid-single digit returns.
Asks for the catalyst for a potential 20% pullback in Q2/Q3 and the catalyst for the subsequent recovery, given the full-year positive outlook.
Frank
Craig Johnson
The catalyst for a ~20% drawdown is midterm election uncertainty (e.g., potential loss of House/Senate). The recovery catalyst could be additional Fed cuts after the election passes.