Oppenheimer Asset Management, a veteran asset management firm in the United States, said on Thursday that as the Federal Reserve appears to be preparing to withdraw from the war against inflation, the S&P 500 index will experience a significant increase by the end of this year.
In an interview, John Stoltzfus, chief investment strategist at Oppenheimer, reiterated the target price of 4900 points for the S&P 500 index by the end of the year. This means that the benchmark index will soar by 18% in just over two months, a prediction based on the possibility that the Federal Reserve may end its interest rate hike cycle.
You must remember that as we raise our targets, we expect the Federal Reserve to continue to be vigilant about inflation, but remain sensitive to the impact of its policies on the economy. And that has always been the case, "he said.
Since March 2022, central banks have been aggressively raising interest rates to curb inflation, with the current federal funds rate ranging from 5.25% to 5.5%. This has raised concerns that the Federal Reserve's aggressive policies may push the United States into recession, despite the impressive resilience of the US economy to date, with GDP growth of 4.9% in the third quarter.
Despite some disappointing results from large technology companies this week, corporate profits seem to have remained stable. According to FactSet data, among the 17% of S&P 500 index companies that reported third-quarter results last week, 73% exceeded analysts' expectations.
Although there has been a sell-off in the stock market in recent weeks, this is mainly due to concerns about the rise in the yield of US treasury bond bonds. The yield of 10-year US treasury bond recently exceeded 5% for the first time since 2007. But Stoltzfus said that a yield of around 5% is actually quite normal compared to history.
According to the data of the Federal Reserve, it is quite normal for the yield of 10-year treasury bond bonds to hover around 4% -5% by historical standards.
"Historically, in normal times, the yield of 10-year treasury bond is usually 4% -5%," he added, pointing out that the interest rate in the past 15 years is at an abnormally low level.
The Federal Reserve has warned that while continuing to monitor inflation and economic strength, interest rates may remain high for a longer period of time. Nevertheless, the market still expects interest rates to be lowered before the middle of next year. According to CME's Federal Reserve observation tool, investors expect an 80% chance that interest rates will fall below current levels by July 2024.
Stoltzfus stated that considering the significant drop in the S&P 500 index caused by interest rate hikes in 2022, this may be beneficial for the stock market.