The S&P 500 should rally strongly by year-end as it moves past the Russia-Ukraine conflict and Fed worries, RBC has said. The investment bank said the index should rise to 5,050, around 17% higher than Thursday’s closing price. However, RBC analysts cautioned the S&P may have further to fall first, if history is any guide. Loading Something is loading.
The S&P 500 will rally 17% from Thursday’s closing level as it rebounds from the “growth scare” induced by the Russia-Ukraine conflict and the Federal Reserve , analysts at RBC Capital Markets have predicted.
US stocks have fallen sharply in 2022 and could still have further to go, RBC analysts, led by equity strategy chief Lori Calvasina, said in a note Friday.
However, the S&P 500 should at some point rebound powerfully to rise to 5,050 by the end of the year, they said. That’s 17% more than Thursday’s closing price of 4,289.
Calvasina and co. said they are increasingly convinced that the best way to understand the current situation in stock markets is to look back at past “growth scares” – moments when markets feared that a recession may soon materialize.
Over the past four growth scares — the eurozone crisis of 2010, the US debt downgrade of 2011, the industrial recession of 2015–16, and the sell-off of late 2018 — the S&P 500 fell on average 17%.
Yet they said stocks have historically rebounded strongly from these moments of fear. “Six to 12 months later, the total recovery off the trough averaged 24% to 30%,” they wrote.
The S&P 500 was down almost 12% from its 3 January high on Wednesday, putting it close to “growth scare” territory, RBC said.
The index rallied Thursday and was up again Friday, however, putting it roughly 10% below recent highs.
RBC analysts said the S&P 500 may therefore fall significantly further but then is likely to rally powerfully back above 5,000 if history is any guide.
“Our sentiment analysis and our work showing how quickly stocks tend to recover from growth scares are telling us to be on the lookout for a positive inflection in the stock market, even if it is not at hand just yet,” they said.
However, they said that uncertainty is very high, following Russia’s invasion of Ukraine on Thursday.
Russian President Vladimir Putin’s decision to bring war back to Europe drew swift international condemnation. But sanctions fell short of targeting the country’s all-important energy sector, cooling concerns about the global economic impact.
Read more: A Wall Street veteran weighs in on why escalating Russia-Ukraine tensions are unlikely to delay the Fed’s hawkish campaign to raise rates — and shares 3 commodity-based strategies to leverage in this environment
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