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Inflation continues to cast a worrying shadow over the US and Credit Suisse expects the Fed to change its interest rate strategy.
The global investment bank thinks the US Federal Reserve will start cutting rate hikes sooner than expected.
Their speculation is based on the fall in inflation in the country.
Jonathan Golub, the firm’s U.S. equity strategist, thinks the Fed will embark on a strong market break.
“This is actually what’s being priced into the market broadly,” said Golub.
“Every one of us sees when we go to the gas station that the price of gasoline is down, and oil is down. We see it even with food.”
“So, it really is showing up in the data already. And, that’s a really big potential positive.”
Potential inflation collapse
A note has surfaced summarizing this week’s CPI and PPI data, and the chief equity “Futures indicate that Food and Energy prices should fall -5.7%and -11.8% by year end 2023, while Goods inflation has declined from 12.3% to 7.0% since February,” he explained.
“Over the past year, Services and Rents are up less than Headline CPI (5.5% and 5.8% vs. 8.5%).”
The Federal Reserve
Jonathan Golub expects the Federal Reserve to halt rate hikes as soon as it sees signs of lower inflation. He set out a schedule for the next four to six months.
“The market believes that come the first quarter, if we continue to go on this glide path where things renormalize, that they’re going to either pause or signal that they might pause,” Golub explained.
“If they do that, the stock market wants to move ahead of it. The stock market is really going to take off.”
Credit Suisse’s Chief Equity Strategist believes that now is the best strategic time to look for opportunities.
Golub pointed to consumer goods, industrial companies, integrated oil producers and refiners.
“Valuations on the market are somewhat between fair and inexpensive right now,” he said.
“Meaning there’s more upside from p/e [price to earnings] multiples.”
Jonathan Golub’s year-end target for the S&P 500 is 4,300 points, up about 5% from Monday’s close.
After the last two months, the index is up almost 8%. However, the S&P is still around 15% below its all-time high.
Inflation ‘collapse’ will launch powerful market rally, Credit Suisse predicts