Here's where politicians will switch focus from high prices to struggling 401Ks
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The hand-wringing in Washington over inflation could switch to dismay about wealth destruction in as few as 300 points on the S&P.
The Fed's terminal rate will depend as much on politics and markets as it does on U.S. economic performance, Jefferies strategist Chris Wood says.
In his Greed & Fear note Friday, Wood dismissed a lot of talk about market-driven inflation expectations as "academic gobbledygook and only important because the Fed thinks it is important, which is obviously why markets think it is important."
But he also noted Fed chief Jay Powell's shift of attention on consumer inflation expectations such as those in the Michigan sentiment survey.
At "some point in coming months, amidst bearish price action in markets, the focus of vote-seeking American politicians is likely to switch from worrying about the need to be seen to be doing something about inflation to worrying about the impact of monetary tightening on Americansâ 401k plans and the like," Wood said.
Wood's best guess is that happens when the S&P 500 (SP500) (NYSEARCA:SPY) is 30% off its peak.
The S&P is now about 23.5% off its peak close in January, so that would mean a further drop of a little more than 300 points.

He noted that bearish market action continues to move from the periphery to the core, reflected in the decline of the six big tech stocks: Meta (META), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), Alphabet (GOOG) (GOOGL) and Microsoft (MSFT) (still known as FAANGM with a new mnemonic yet to catch on.)
"The six Big Tech stocks now account for 21.5% of the S&P500 market capitalization, down from 25.1% in mid-December," Wood said.
"It is also the case that the situation now seems ripe for renewed outflows from domestic equity ETFs since there have been significant inflows since last month. US domestic equity ETFs recorded estimated net inflows of US$66.55bn in the six weeks to 8 June, following a net outflow of US$23.06bn in April, the biggest monthly outflow since January 2019."
Earlier this week, Washington floated the idea of doubling the tax on oil companies to battle inflation.