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Stocks have room to climb even higher as an overwhelming political response to the Federal Reserve coronavirus pandemic and the potential for a fourth-quarter economic pickup is accompanied by the potential burst of a “fear bubble”, according to a well. well-known Wall Street analysts.
But the road may be more difficult after the middle of the year, Barry Bannister, head of institutional equity strategy at Stifel, said in a note on Wednesday. Bannister raised its April 30 goal for the S&P 500
SPX
to 2,950 after the large cap index beat its previous target of 2,750. That would mark a gain of around 3.7% since the index closed Tuesday at 2,846.06.
“In addition to the easing of Fed policy and possible positive GDP inflection in 4Q20, we also note that COVID-19 may simply be a” bubble of fear “burst, relief from which investors should expect a recovery.” Bannister wrote.
The shares traded at record levels in February, but collapsed in a bear market at record speed as the pandemic escalated. The Federal Reserve has pledged trillions of dollars in monetary stimulus and backs to dampen the economy and keep financial markets running, while governments have responded with relief efforts. The scope of the response has been credited with allowing stocks to rebound sharply from their March 23 lows.
Stocks were defensive on Wednesday, however, with the Dow Jones Industrial Average.
DJIA
falling around 600 points, or 2.5%, while the S&P 500 fell 2.6% to trade near 2,774.
“The S&P 500 leads the economic recovery because the excess liquidity provided during a recession first flows to financial assets before being absorbed by the real economy; Also note that in this cycle policy makers seek to maintain global liquidity growth in US dollar terms, ”said Bannister, referring to the Federal Reserve and global central banks’ measures to meet a global increase in the demand for the US currency (see table below).
Stifel
Seasonality also plays a role in the forecast, as stocks appear to enjoy some of the usual tailwind that has seen stocks outperform significantly in the November-April period relative to the rest of the year.
But Bannister seemed less optimistic about the market outlook beyond mid-2020.
“As the public narrative changes and the climate warms, we see the strength of the S&P 500 through mid-2020, but beyond that point the additional debt and government control, the loss of Fed independence and the erosion of capitalism may limit the growth of the S&P 500 and the potential growth of GDP. ” he said.
