Zweig-DiMenna, one of Wall Street’s longer-running hedge funds, is telling clients to brace for a potential 15% annualized decline in the S&P 500. The culprit: a “toxic cocktail” of rising consumer-price inflation colliding with an economy that refuses to slow down.
In a client newsletter dated May 20, the firm’s strategists Michael Schaus and Matthew Finkelstein laid out a case built on 50 years of market data. When inflation accelerates alongside strong economic growth, the S&P 500 has historically delivered a negative 15% annualized return. That’s not a forecast pulled from vibes. It’s pattern recognition from half a century of data.
The inflation gauge nobody’s talking about
At the center of Zweig-DiMenna’s thesis is a proprietary inflation-indicator model that just surged to a reading of 72. For context, the last time it hit comparable levels was in 2022, 2018, and 2012. Each of those years brought meaningful market turbulence.
In 2022, the S&P 500 fell roughly 19% for the year as the Federal Reserve embarked on its most aggressive rate-hiking cycle in decades. The 2018 reading preceded a near-20% correction in the fourth quarter. And 2012, while less dramatic on the surface, saw significant mid-year volatility before central bank intervention calmed markets.
