S&P 500 to Climb 'wall of Worry' to 4,400 According to Stifel

Stifel predicts that the S&P 500 could reach 4,400 by the end of this year if concerns about an imminent recession prove to be unfounded, according to their market strategist, Barry Bannister. He believes that the index will hit the 4,400 level before December's end and then trade relatively flat until April 2024. Achieving this level would represent a 3.8% increase from the closing value on Wednesday and a 14.6% gain compared to the end of 2022.

‍

Bannister stated in a note to clients that there is no immediate threat of a U.S. recession as the S&P 500 continues to climb despite existing worries in the market. This contrasts with the average market strategist's expectation, which suggests the S&P 500 will conclude 2023 at 4,358, as per a CNBC Pro survey.

‍

Although Bannister remains generally optimistic, he views the possibility of the S&P 500 reaching a new high by the year's end (exceeding 4,607.07) as highly unlikely due to prevalent market fears, including the S&P 500's temporary movement into correction territory. However, he considers concerns about an impending recession that could severely impact the market as exaggerated.

‍

One of the reasons he dismisses the idea of a looming recession is the lack of a necessary correction in the ISM Index. Despite the index displaying more contraction in October than expected by economists, Bannister points to leading indicators for both global and U.S. manufacturing PMIs, indicating a forthcoming rebound.

‍

Bannister also looks at historical lows of the ISM index, suggesting a recovery in the fourth quarter of 2024. He believes it's probable that the index hit its lowest point in June 2023. The avoidance of a recession-level slowdown for the ISM PMI implies upside potential for the S&P 500 over the next six months.

‍

Additionally, he does not anticipate the Federal Reserve to implement more interest rate hikes within the next six months, given that inflation, although somewhat persistent, is not at a level that would necessitate further tightening, thus mitigating concerns of the Fed inadvertently causing a recession in the near term.

‍

Bannister remains bullish as he expects the U.S. consumer to remain resilient. He suggests that excess savings and real wage growth will boost consumer sentiment and consumption, despite economic headwinds like high interest rates and the resumption of student loan payments.

‍

Furthermore, Bannister envisions a shift in market leadership as the year ends, with a move towards cyclical value industries such as banks, insurance, materials, and real estate. He believes this group will take the lead through mid-2024. This change follows a year where large technology companies and some other cyclical growth stocks dominated, obscuring underlying market fundamentals.

‍

He also provided a list of the largest cyclical value stocks with buy ratings from the firm, as compiled by CNBC Pro.

‍