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- The S&P 500 is poised for a 9% rally as conditions continue to favor growth stocks over value stocks, Stifel’s Barry Bannister said Wednesday.
- Bannister, who had called for a correction sometime in the second half of 2020, reversed his bearish S&P 500 price target of 3,100, raising it to 3,800.
- Investors may be warming to the idea of a divided government, with a Republican Senate and a President Joe Biden, as it would probably eliminate a 10% hit to S&P 500 profits from tax increases while keeping hopes for additional fiscal stimulus alive, Bannister said.
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One Wall Street strategist is reversing his bearish view on the S&P 500 as the outcome of the 2020 election remains uncertain.
Stifel’s Barry Bannister said in a note on Wednesday that technology stocks would help lead the S&P 500 higher by as much as 9% from Tuesday’s close, to 3,800, by the spring. The call is a reversal of his forecast of a correction in the second half of 2020 and for the S&P 500 to trade at the 3,100 level.
He said his upgrade was predicated on typical post-recession price movement in stocks, seasonality, and a continuation of conditions that are likely to favor growth stocks over value stocks.
A divided government, with a Republican Senate and a President Joe Biden, might ultimately be “half a loaf” scenario for investors, since it would likely eliminate the potential for a 10% hit to S&P 500 earnings from tax increases while keeping hopes for additional fiscal stimulus alive, Bannister said.
Low interest rates, elevated earnings multiples, a flight to quality, and no corporate tax hike are among the conditions likely to remain, helping growth stocks continue their rally, the note said.
"The S&P 500 would be 3,800 in 2021 if it ends on the high side of the central tendency of past post-recession recoveries," Bannister said.
Seasonality trends also favor stocks, Bannister said, highlighting that the S&P 500 tends to outperform from November to April than from May to October.
But Bannister's forecast could hit a snag if control of the Senate flips to Democrats in final vote tallies. That would lead to value stocks surging on the potential for higher interest rates, valuation compression, and higher taxes, the note said.
The reversal in Stifel's S&P 500 forecast may be easy for investors to stomach, with stocks surging as much as 3% in Wednesday trades.