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In a bullish outlook, Oppenheimer’s Chief Investment Strategist, John Stoltzfus, has suggested that the S&P 500 may experience a remarkable 18% surge by the end of the year, primarily based on the expectation that the Federal Reserve is poised to conclude its rate hike cycle.
Stoltzfus reaffirmed his S&P 500 year-end price target of 4,900 in an interview with CNBC, underscoring the belief that the Federal Reserve will maintain a vigilant stance against inflation while remaining sensitive to the effects of its policy on the economy.
The Federal Reserve had implemented aggressive interest rate hikes since March 2022 to combat inflation, resulting in the fed funds rate reaching a range of 5.25% to 5.5%. Concerns have arisen that the Fed’s assertive policy could potentially lead the U.S. into a recession. However, the U.S. economy has demonstrated remarkable resilience, with the Gross Domestic Product (GDP) expanding by 4.9% in the third quarter.
Corporate earnings have also shown resilience, despite some disappointing results from leading tech companies. Out of the 17% of S&P 500 firms that reported third-quarter earnings last week, 73% exceeded analysts’ expectations, as per FactSet data.
While stock markets have witnessed recent declines, much of this can be attributed to apprehensions stemming from rising Treasury yields. The 10-year U.S. Treasury yield recently surpassed 5%, a level not seen since 2007. Nevertheless, Stoltzfus pointed out that yields around 5% are relatively normal from a historical perspective, as Federal Reserve data indicates.
He emphasized, “From a historical perspective, 4%-5% is really what the 10-year yield usually would be like during normal periods.” He also noted that interest rates had been unusually low for the past 15 years.
The Federal Reserve has cautioned that interest rates could remain elevated for an extended period, depending on the trajectory of inflation and the strength of the economy. Despite this warning, market expectations anticipate interest rate reductions by mid-next year. According to the CME FedWatch tool, investors are pricing in an 80% probability that rates may be lower than their current level by July 2024. Such a development could prove bullish for stocks, given that rate hikes had a substantial impact on the S&P 500 in 2022.
Stoltzfus has remained one of Wall Street’s most optimistic forecasters, despite growing concerns in the market regarding surging bond yields and the looming possibility of a recession. In 2022, he initially predicted that the S&P 500 would surge to 5,330, although he subsequently lowered this target multiple times over the course of the year.
