‘Cyclical growth’ could lead 10% ‘relief rally’ for S&P 500 this summer, says Stifel’s Barry Bannister

The defeated U.S. stock market is poised for a “recovery” this summer, with the S&P 500 potentially rising 10%, according to Barry Bannister, Stifel’s chief strategist.

“We see a easing rise led by cyclical growth (mainly technology) to 4,150 for the S&P 500” this summer as oil prices fall and the market anticipates a possible pause in interest rate hikes by of the Federal Reserve at its December meeting, Bannister. said in a note from Stifel dated June 23rd.

The S&P 500 SPX,
+ 2.43%
It was trading at more than 2% on Friday afternoon at around 3,888, and was heading for a weekly gain of more than 5%, according to FactSet data, in the latest check. Earlier this month, the index entered a bearish market, defined as a drop of at least 20% from a recent peak, according to Dow Jones Market Data.

Investors have been concerned that the Fed will become more aggressive by raising its benchmark interest rate in an effort to control rising inflation. The fear is that rising rates too quickly could trigger a recession in the US

“The S&P 500 has removed all of COVID’s foam, but we don’t see any recession in the U.S. in six months and a summer rebound,” Bannister said. “Unless an investor sees a recession soon,” he said, “the S&P 500’s cyclical relative to the defensive seems to have happened.”

“One problem with selling cyclicals to buy defensive ones,” done for fear of an economic contraction, is that “everyone else did,” according to the note.

Cyclicals include basic materials, capital goods, transportation, automobiles, durable goods and clothing, retail, energy, banking, insurance, diversified financing, software, technology hardware, semiconductors and media and entertainment, the note shows.

Reads: Don’t rely on the stock market rebound until the S&P 500 returns above 3,800: analysts

Bannister sees the PMI manufacturing index will fall to “a low of 50 soon,” indicating a slower growth in gross domestic product, but not a recession in 2022, according to the note.

As for the rising cost of living, Stifel predicts that core inflation, as measured by the personal consumer spending price index, will slow to “the Fed’s 2.7% view on 2023 “. Bannister hopes that this decline in the central PCE could lead to a pause in the Fed’s rate hikes in December.

“The Fed’s job is a stricter policy to reduce inflation without recession,” he said. “The Fed may also be aware that pushing real rates short-term toward the neutral rate has always created financial crises.”


Meanwhile, CL.1 oil prices,
+ 2.06%
have been down recently, although crude West Texas Intermediate for delivery in August CLQ22,
+ 2.06%
was trading up more than 2% on Friday afternoon at around $ 106.55 a barrel. That compares to about $ 120 a barrel earlier this month.

“There are no straight lines on Wall Street and we think this stock market is looking for good news about inflation, and that’s oil,” Bannister said. He expects oil prices to drop to around $ 85 a barrel in December, and says he predicts a “ceasefire” in the war between Russia and Ukraine, as the cost to the West has become “unsustainable” in as GDP slows in the middle of high inflation.

“The weak political position of most Western leaders juxtaposed over time next to Russia (for now) increases the likelihood, in our view, that the West will” persuade “Ukraine to accept a ceasefire,” he wrote.

Reads: Inflation slows Biden and other G-7 leaders as they consider more sanctions on Russia at summit

Meanwhile, JPMorgan Chase & Co. strategist Mark Kolanovic said Friday in a note that the monthly and quarterly rebalancing of portfolios next week could push the stock market up by about 7%, in a moment when it is “oversold” while cash balances are close to record levels. .

He noted the latest monthly rebalancing, saying the market experienced a “significant rebound” of around 7% in late May, after falling 10%. And by the end of the first quarter, the market grew similarly around 7%, he said.

“This year, the impact of rebalancing has been significant due to large market movements and low liquidity,” Kolanovic wrote. “Of course, rebalancing is not the only impetus and the estimated move assumes that ‘everything else is the same.’

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