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The stock market could rise as much as 10% by the end of the year, according to Citi’s head of equity strategy.
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Stuart Kaiser told Bloomberg TV that the uber-bull case is now “a plausible scenario.”
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According to him, the economy only needs to avoid a recession, and the labor market is ultimately decisive for that.
Wall Street is predicting S&P 500 highs that will break the 6,000 threshold. The bullishness may be warranted, says Citi’s Stuart Kaiser.
“The uber-bull scenario, I think, has been this whole year: You avoid a recession, you get insurance cuts, right? And that’s a plausible scenario now,” the firm’s head of U.S. equity trading strategy told Bloomberg TV on Tuesday.
If successful, shares 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 an effort to stave off a future economic downturn.
This precautionary measure, which amounts to a 50 basis point cut in the federal funds rate, was embraced by equity investors and the indices have since reached new record highs.
To make Kaiser’s point, this will last as long as a recession doesn’t occur. But while the Fed stressed it wasn’t predicting an impending downturn at its last policy meeting, it all depends on incoming labor market data, he noted.
Since August, the declining labor conditions have been the main cause of slowdown fears. Investors should make sure that the labor figures remain intact in the coming monthly data, otherwise recessionary forecasts could become increasingly valid.
“We think the risk/reward is tricky because it really depends on the month-to-month ratio,” Kaiser noted, warning that recession numbers could easily undo the Fed’s efforts to support the market.
Other banks also keep an eye on employment figures.
According to Morgan Stanley, investors can celebrate if unemployment falls below 4.1% and non-farm payrolls exceed 150,000. This will be the best-case scenario for the market, keeping the momentum going.
Otherwise, trade must prepare for the worst, if unemployment rises above 4.3% and the number of jobs falls below 100,000.
“The Fed is not going to protect you when you get data like that, and that’s why we think the risk/reward is a little bit off right now,” Kaiser said.
Read the original article on Business Insider
