A severe economic downturn could send the benchmark S&P 500 index down to 2,888 (25% below its close on Tuesday). The index has already lost 19% this year.
Markets have fretted about a potential recession since the Fed began raising interest rates in March in a bid to tame inflation.
However, since the September CPI report showed inflation hit a four-decade high of 8.2%, this means the Fed hasn't yet managed to bring the price increase rate closer to its 2% target.
Bank strategists believe this could force the Fed to continue hiking into next year, which would increase recession risks, while higher oil prices and rising bond yields could also weigh on stocks.
Yields on 10-year US Treasuries have jumped more than 250 bp year-to-date, meaning it has become more expensive for firms to borrow cash.
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