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A Wall Street strategist who predicted a U.S. stock-market rally in the first half of the year now sees stocks declining through the end of 2023, with stocks unlikely to regain previous momentum until at least April 2024. .
Barry Bannister, chief equity strategist at Stifel, has raised his 4,400 target for the S&P 500 from later this year to April 2024 because higher interest rates could put pressure on corporate earnings, weighing on stock prices, he said. Could.
We believe the rally from the October 2022 low is over, and our view has been a sideways trading range since summer 2023,” Bannister said in a Monday note. “The updated view is that we now believe our year-end 2023 target of 4,400 applies to April 30, 2024.”
Bannister was one of the few Wall Street strategists who correctly predicted a US stock-market rally in the first half of 2023. He also said economic risks to equities will increase in late 2023 as stock gains stall in the second half of the year. He set his year-end target of 4,400 for the S&P 500 in May, about 4.3% higher than Monday’s closing level of 4,217.04, according to FactSet data.
“We traded the relief rally in [early 2023], turned neutral in the summer of 2023 and discouraged the bullishness before the third quarter of 2023,” Bannister said. He said he thinks a new record-high for the S&P 500 by year-end 2023, as some of Wall Street’s most bullish strategists have predicted, is “extremely unlikely.”
Meanwhile, Bannister thinks the key 10-year U.S. Treasury yield will hover around 5% in the current cycle, but he estimates a “normalized” 10-year yield of 5% or 6% in the mid-2020s, which would Can exert pressure. Corporate earnings.
The 10-year Treasury yield rose as high as 5% on Monday for the first time since 2007, according to Dow Jones Markets data, hitting an intraday high of 5.02% in morning trading before ending the New York session at 4.836%.
Bannister wrote, “This is not ‘the Fed higher for longer’ – the Fed has returned to ‘policy modulation on normalized rates.'”
Bannister also pointed to the health of the US labor market as a source of economic resilience and a reason for “Fed rate normalization”, which could strengthen financial conditions and put pressure on price-to-earnings ratios for stocks. Is.
The price-to-earnings ratio, sometimes known as the price multiple, is the ratio of a public company’s stock price divided by its annual earnings per share. It is a way to determine stock valuation.
That’s why the strategist believes the S&P 500 will remain flat or “range-bound” for the remainder of the 2020s as tight financial conditions will halve the price-to-earnings ratio at US companies, but this could be offset by earnings growth. Is. -Per Share (EPS). Bannister estimates S&P 500 EPS will at least double from $156 in 2019 to a range of $300-325 in 2030.
EPS is a company’s net profit divided by the number of common shares it has outstanding, and it usually indicates how much money the company makes for each share of its stock.
U.S. stocks closed mostly lower on Monday, with the Dow Jones Industrial Average down 190 points, or 0.6%, at 32,936, but the Nasdaq Composite rising 0.3%, according to FactSet data.