The market’s bounce off the July lows may have additional to go as inflation pressures begin easing, Stifel’s Barry Bannister stated. The agency’s chief fairness strategist hiked his year-end S & P 500 goal to 4,400 from 4,200. The new goal implies upside of 6% from Thursday’s shut “Cyclical Growth… has a strong relief rally as inflation slows, Fed expectations are pulled back, and the economy has the balance sheet and momentum in 2022 to mitigate recession risk,” the chief fairness strategist wrote in a be aware. The S & P 500 is up about 14% from its June 17 low of three,636.87. However, it is nonetheless down roughly 13% for the 12 months. Bannister listed quite a lot of elements for his goal hike. For one, the S & P 500’s sell-off within the first half continues to be being reversed. The index additionally reductions unfavourable year-over-year S & P per-share earnings in 2022, “but we see 2022 EPS holding its own,” he stated. In addition, fed funds futures — which tracks market expectations for the place Federal Reserve charges might be — have peaked, he wrote. That places a prime in for the 10-year Treasury inflation-protected securities (TIPS) actual yield, which is bullish for the S & P 500 price-earnings ratio, Bannister stated. He additionally sees valuation dangers dropping. As for a possible recession, he is not nervous. “Inflation is likely to sharply decline soon in a (highly unusual, COVID policy-shaped) non-recession slowdown,” Bannister stated. To be certain, there are some dangers to his thesis, together with an oil shock ensuing from the Russia/Ukraine battle and a change in monetary situations. “This rally requires cooperative Financial Conditions (FCI), so for risk we watch for any catalyst that tightens FCI (lowers P/E),” Bannister wrote. How to play it In this surroundings, Bannister prefers cyclical progress shares in sectors similar to software program, media and leisure, tech {hardware}, retail and semiconductors. Notable names in these teams embody tech heavyweights Microsoft , Alphabet , Apple , Amazon and chips big Nvidia . Other shares that match the invoice are Visa , Meta , Cisco , Broadcom and Home Depot .
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