BMO Capital Markets’ Brian Belski said recession fears are overblown and the S&P 500 should rally 20% by year-end. The flattening of the bond-yield curve is nothing to worry about, the veteran strategist said. In fact, US stocks normally post solid gains when the yield curve is evening out, he said. Loading Something is loading.
Fears about a recession are overblown, and US stocks should rally 20% from current levels by the end of the year, according to Brian Belski of BMO Capital Markets.
A flattening of the US government bond yield curve has unnerved some investors. They believe it’s a signal the economy will become weak or even fall into a recession as a result of the Federal Reserve raising interest rates.
But Belski, chief investment strategist at BMO, told clients in a note this week not to worry, saying he doesn’t think a recession is on the horizon.
The strategist stuck to his view that the S&P 500 will rise to 5,300 by the end of the year — one of the most bullish forecasts on Wall Street. The target is more than 20% above the S&P’s Friday morning level of around 4,370.
US stocks have fallen sharply in 2022, and bond yields have risen as investors have braced for the Fed to hike interest rates in an effort to tame the strongest inflation in 40 years. The S&P 500 was down around 8% for the year, at last check Friday.
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Yields have risen sharply on shorter-dated bonds, which are more sensitive to possible interest-rate changes. But they have moved up less quickly on longer-dated securities, which are more responsive to economic expectations.
That has worried many analysts, who think the bond market is signaling a slowdown in US economic growth. Yet Belski dismissed this idea.
“Despite common perceptions, flatter yield curves have actually been better for stocks than steeper ones,” he wrote. “S&P 500 has averaged a 10.8% annualized gain during past periods of prolonged curve flattening.”
Analysts at JPMorgan made a similar point in a note this week. “The start of policy tightening is, the vast majority of times, a confirmation that the cycle has legs, rather than the signal of its end,” the team, led by Mislav Matejka, wrote.
However, many strategists expect market volatility to continue, with geopolitical tensions in Eastern Europe further complicating the picture.
Analysts at RBC Capital Markets have said a Russian invasion of Ukraine could hammer stocks in similar fashion to the two Iraq wars or the US-China trade war of 2018, when equities slid about 20%.
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