- The S&P 500 could rise another 18% by the end of the year, according to Oppenheimer.
- This is because the economy is strong and the Federal Reserve is likely to end its rate raising cycle.
- While 5% Treasury yields have raised concerns among investors, that's normal compared to previous times.
The S&P 500 is expected to experience a monster rally by the end of the year as the Federal Reserve appears poised to back off its war on inflation, according to Oppenheimer chief investment strategist John Stoltzfus.
In an interview with CNBC on Thursday, Stoltzfus reiterated his S&P 500 price target of 4,900 by the end of the year. That points to the benchmark index soaring 18% in just over two months, a forecast based on the Federal Reserve likely ending its rate hike cycle.
"You have to remember that when we raised that target, we expected the Federal Reserve to continue to be vigilant against inflation but to remain sensitive to the effects of its policy on the economy. And that has been the case," he said.
Central bankers have aggressively raised interest rates since March 2022 to control inflation, with the federal funds rate now between 5.25% and 5.5%. This has raised fears that the Federal Reserve could push the United States into a recession with its aggressive policy, although the economy has remained impressively resilient so far, with GDP grows 4.9% in the third quarter.
Corporate earnings also appear to have held up, despite some disappointing results this week from the biggest tech companies. Of the 17% of S&P 500 companies that reported third-quarter earnings last week, 73% beat analyst estimates, according to Data set data.
And while stocks have sold off in recent weeks, that's largely due to fears stemming from higher Treasury yields, with the The 10-year US Treasury yield recently surpassed 5% for the first time since 2007. But returns of around 5% are actually quite normal relative to history, Stoltzfus said:
The 10-year yield around 4%-5% is pretty normal by historical standards.
Federal Reserve
"From a historical perspective, 4%-5% is really what the 10-year yield would normally be during normal periods," he added, noting that interest rates were unusually low over the past 15 years.
The Federal Reserve has warned that rates could stay high longer as it continues to monitor inflation and the strength of the economy. Still, markets expect interest rate cuts by the middle of next year, and investors estimate there is an 80% chance rates will be lower than their current level by July 2024, according to the CME FedWatch tool. . This could be bullish for stocks, considering rate hikes weighed heavily on the S&P 500 in 2022.
Stoltzfus has been one of Wall Street's most optimistic forecasters, despite concerns brewing in markets about rising bond yields and the possibility of a recession on the horizon. In 2022, he predicted the S&P 500 would rise to 5,330but then cut that target several times throughout the year.
