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The stock market could rise as much as 10% by the end of the year, Citi's head of equity trading strategy said.
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Stuart Kaiser told Bloomberg TV that the extreme optimism scenario is now “a plausible scenario.”
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He said the economy just needs to avoid a recession, which will ultimately depend on the labor market.
Wall Street forecasts S&P 500 highs exceed the 6,000 thresholdCiti's Stuart Kaiser said this optimism may be deserved.
“I think the most bullish argument all year has been: if you avoid a recession, you get insurance cuts, right? And that's now a plausible scenario,” said the firm's head of U.S. equity trading strategy. Bloomberg Television on Tuesday.
If that is achieved, the stock could rise another 5% to 10% by the end of this year, Kaiser said.
So far, the second half of those conditions have been met. This month, the Federal Reserve finally began cutting interest rates, in a move aimed at preventing a future economic downturn.
This precautionary “insurance” cut—a 50-basis-point reduction in the federal funds rate—was welcomed by stock market investors, and indexes have since hit new all-time highs.
According to Kaiser, this will continue as long as a recession does not materialize. But while the Fed stressed that it was not predicting an imminent slowdown during its last policy meeting, everything depends on the data that is released on the labor market, he said.
Since August, deteriorating employment conditions have been the main factor driving fears of a slowdown. Investors will need to check that employment figures remain intact in the upcoming monthly data, otherwise recession prospects could become increasingly valid.
“Our view is that the risk-reward trade-off is difficult because it really depends on a month-to-month basis,” Kaiser said, warning that recessionary numbers would easily derail any Fed efforts to support the market.
Other banks are too Looking at employment data.
According to Morgan Stanley, investors can celebrate if unemployment falls below 4.1% and nonfarm payrolls top 150,000. The best scenario for the marketmaintaining the momentum.
Otherwise, retailers should prepare for the worst if unemployment rises above 4.3% and payrolls fall below 100,000.
“The Fed is not going to protect you if you get that kind of data, and that's why we think the risk-reward ratio is a little bit low right now,” Kaiser said.
Read the original article at Business information