The S&P 500 index will probably struggle to rise much above 4,650 into mid-2024, as megacap growth stocks stand to lose ground to “cyclical value” equities, according to Stifel chief equity strategist Barry Bannister.
His view, expressed in a note Monday, suggests the S&P 500 may barely gain ground from its current level, after closing on Friday at its highest value since March 30, 2022. On Monday, the index
SPX
was trading modestly lower at around 4,563, FactSet data show, at last check.
Stocks have rallied this year as inflation has eased, with many investors expecting the Federal Reserve will begin cutting interest rates in 2024. But Bannister expects inflation may be “sticky” in the first half of next year, with “better global economic growth,” according to his note.
“We do not see the Fed cutting” in the first half of 2024, he wrote. The Fed has tightened its monetary policy to battle high inflation, lifting its benchmark rate to the highest level in 22 years.
“Keeping Fed policy vigilant, we forecast that unemployment likely pulls back into spring 2024,” Bannister said, citing Stifel’s calculation of the “true permanent unemployment rate.”
Bannister said he is expecting to see a rotation into cyclical value stocks, from megacap cyclical growth, making it tough for the capitalization-weighted S&P 500 to top 4,650 by the end of June.
Cyclical growth includes megacap stocks that have soared in 2023, such as Google parent Alphabet Inc.
GOOGL,
Facebook parent Meta Platforms Inc.
META,
chip maker Nvidia Corp.
NVDA,
Apple Inc.
AAPL,
and electric-vehicle maker Tesla Inc.
TSLA,
his note shows.
Among the cyclical value areas of the stock market are banks, capital goods, energy, financial services, insurance, materials, real estate and transportation, according to Bannister. As for broad areas of cyclical growth, he cited media and entertainment, semiconductors, technology hardware and equipment, as well as autos and components.
Bannister’s 2023 call
In January, Bannister had called for the S&P 500 to rally in the first half of 2023 and then run into trouble in the second half. Stocks surged in the first seven months of 2023, before the S&P 500 suffered three straight months of losses through October and then rebounded in November.
“The S&P 500 in 2022 already reflected a COVID-warped ‘pseudo-recession,’ ” and the index has been in recovery since October of that year, Bannister said in his note on Monday. In his view, the pseudorecession that ran from around April 2022 to March 2023, “lacked unemployment because only excess labor demand fell.”
STIFEL NOTE DATED DEC. 4, 2023
The S&P 500 has climbed almost 19% so far in 2023 based on midday trading on Monday. Bannister’s mid-year 2024 forecast implies that the index may have a hard time rising more than 2% from current levels.
The U.S. stock market was down on Monday, after all three major benchmarks rose for five straight weeks. The Dow Jones Industrial Average
DJIA
was off 0.3% in midday trading, while the S&P 500
SPX
fell 0.7% and the technology-heavy Nasdaq Composite
COMP
dropped 1.1%, FactSet data show, at last check.
