In the past week, the U.S. stock market has been hit by several bearish factors, experiencing a series of sharp declines. However, some Wall Street analysts warn that the chaos may not be over.

What Happened?

The S&P 500 index fell 8% from its peak on July 16th, closing below 5,200 points on Wednesday. During the same period, the tech-heavy Nasdaq Composite index fell by 13%, and Bitcoin and Ethereum fell by 16% and 31%, respectively, returning to the low points of February.

NVIDIA, the AI leader, saw its stock price fall from a high of $141 on June 20th to $99 at the close on Wednesday, a drop of 30%. The sell-off reduced its market value from $3.2 trillion to below $2.5 trillion.

The market collapse stems from several unfavorable factors intertwined, causing panic among investors: the unexpected surge in unemployment triggering the Sahm Rule recession indicator; the Bank of Japan's interest rate hike triggering an epic global stock market sell-off; the Federal Reserve's reluctance to cut interest rates; and the huge investment in AI by tech giants that have not yielded returns for a long time.

Fortunately, the latest data shows that for the week ending August 3rd, the seasonally adjusted number of first-time applicants for unemployment benefits in the United States was 233,000, a decrease of 17,000 from the previous week and lower than the market's expected 240,000. This has reduced market concerns about a U.S. economic recession, and U.S. stocks opened higher on Thursday and closed higher across the board.

More Pain to Come?

However, several Wall Street bigwigs warn that there may be more pain ahead.

Paul Dietrich, Chief Investment Strategist at B. Riley Wealth Portfolio Advisers, wrote in the latest report, Stock market finally appears to be starting to correct. He attributed the massive stock market sell-off to fears of a looming U.S. recession caused by deteriorating economic data, and warned that the S&P 500 index may eventually plunge 40% from its recent high.

Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs, said this week that the lingering anxiety in the market may intensify further volatility.

I feel like this correction, while stabilizing, is not over yet. I think we're still going to see some bumpy environments in the near term as investors really start to recalibrate and regain confidence in the direction of rates and the economy, he said.

He also added that U.S. stock valuations are still high, with a price-to-earnings ratio above 20. In a recession, the price-to-earnings ratio may fall to 18, leading to a fair value position for the S&P 500 index at 4,800 points.

Many investors hope that the market downturn and increasing signs of economic weakness will prompt the Federal Reserve to start cutting interest rates, thereby boosting asset prices. However, veteran economist Rosenberg warned investors not to breathe a sigh of relief if this happens.

David Rosenberg, President of Rosenberg Research, a top U.S. economist, pointed out that the Federal Reserve began a cycle of interest rate cuts in January 2001 and September 2007, and two recessions hit a few months later. In the following years, the S&P 500 index also fell by about 40% and 50%, respectively.

Now you know where the term 'sucker's rally' comes from,' Rosenberg said.

He also noted that J.P. Morgan's economists recently raised the possibility of a recession this year from 25% to 35%, and Goldman Sachs also raised the possibility of a recession next year from 15% to 25%.

There are few asset classes that are priced anywhere near that opportunity, he warned.

The remarks of these experts indicate that as the economic recession intensifies, investors should be prepared for further market turmoil and possible significant declines, even if the Federal Reserve intervenes to save the situation.