The S&P 500 has historically posted an average three-month return of 8pc, when the Fed stops lifting rates. David Kostin is sceptical that will happen this time.
near the end of tightening cycles, but that is not our economists’ base case. While history suggests upside risk to our forecast for a flat SP 500, we believe valuations and earnings each face specific headwinds that will prevent near term returns from being as strong as usual.
“Our economists currently estimate a 35 per cent probability of a recession in the next 12 months, compared to a 60 per cent probability for consensus. In the event of a near-term recession, we expect the SPeter Berezin, chief global strategist at BCA Research, said the “relief rally” in stocks could continue over the next few months asabate, earnings estimates temporarily stabilise, and inflation comes down.
While Berezin forecasts that the Federal Reserve will start cutting interest rates in 2024, “given the lags in monetary policy, this will not be enough to preclude a mild recession”.For now, BCA is recommending a shift from equities to cash, and to continue to favour non-US equities which are valued lower than their US peers. As for the tech-paced rally this year, “we are not inclined to chase this rally”.
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