Investing

Despite the Massive 'Melt-Up' Rally, Stifel Lifts S&P 500 Price Target Again

Wall Street has seen its share of outstanding prognosticators over the past 100 years. From Warren Buffett, Carl Icahn, Stanley Druckenmiller and Peter Lynch to Kyle Bass, Bill Ackman, Dan Loeb and so many others. These are investors who have had the courage to take a hard stand, especially during difficult circumstances, and then to put their money where their mouth is. The same task of finding the correct path is also in the hands of the chief equity strategist at the top firms on Wall Street. One strategist and his team have made stunningly remarkable calls this year and in the past.

Barry Bannister, the head equity institutional strategist, and his staff at Stifel have far and away made the most remarkable predictions in market direction this year. We have covered Bannister and his work for years here at 24/7 Wall St., and he consistently has delivered some of the most spot-on calls. 2020 may go down as one of his best years and calls ever.

Into the teeth of the withering sell-off back in March, the Stifel team had the foresight to make a prediction for a strong market bounce. On March 19, just four short days before the final surge of selling and investor capitulation on March 23, the Stifel prediction was for a relief rally that would carry the S&P 500 to 2,750 level by April 30. On March 23, the index hit an intraday low of 2,191 and closed at 2,237.

We covered the incredibly bold prediction at the time, and while some were very skeptical of the call, Bannister then made the prerequisite financial media rounds giving his firm’s rationale. In early April as a surge of alarming news on the COVID-19 pandemic and other issues flooded the airwaves, Stifel came out and defended the call, telling clients to stand their ground. In the middle of April, as the rest of Wall Street was finally on board, the firm raised the end of April target to 2,950. On April 30, in line with the laser-like call from Stifel, the S&P 500 closed at 2,912, after hitting an intraday high of 2,930 and after trading to 2,950 level the day before.

Here we are at the end of May, with the S&P 500 finally breaking through the huge overhead resistance that was perched at the 3,000 level, after a month of sideways trading and consolidation. Right on time, Bannister is out with a summer prediction that should make investors feel somewhat safer after what was called “the most hated rally ever” pushed prices much higher off the March lows.

In a new and comprehensive research report, Stifel again raises the firm’s price target on the S&P 500, this time to 3,250 by August 30. In the report, the analysts presented this summary:

Following our downgrade to a neutral equity market view on April 29, 2020 with our report “We hit our 2,950 by April 30, 2020 S&P 500 target but decline to raise further pending second quarter data” the S&P 500 has traded roughly sideways for a month. We now raise our S&P 500 price target to 3,250 by Aug-30, 2020 (in 3 months), supported by economic survey data improving/bottoming (consumer, services, industrial) and our expectation that the S&P 500 price to earnings expands (at prevailing low real bond yields) to offset weak earnings per share, typical of late-stage recession periods. Our unchanged view of a positive U.S. GDP inflection in the third quarter of 2020 favors reflation candidates (beneficiaries of a weaker dollar, steeper yield curve), which are Financials, Energy, Materials and Industrials.

The extensive Stifel report noted that with a backstop of enormous liquidity, which came in response to a total lack of it in late March, and the potential for an upturn in gross domestic product by late August, that should help carry the S&P 500 to the firm’s 3,250 handle. The analysts point out the massive stimulus provided by the Federal Reserve and the government outpaces every post World War II cycle.