As a result of falling inflation, Credit Suisse anticipates that the Federal Reserve will halt interest rate increases earlier than is generally anticipated.
A strong market breakout will be launched, predicts the company’s leading U.S. stock strategist.
“This is actually what’s being priced into the market broadly,” on Monday, Jonathan Golub spoke with “Fast Money” on CNBC. “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.”
Golub claims the “collapse” in inflation will take place over the next 12 to 18 months in a new note that anticipates this week’s release of the August CPI and PPI statistics.
“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 wrote. “Over the past year, Services and Rents are up less than Headline CPI (5.5% and 5.8% vs. 8.5%).”
Golub anticipates that the Fed will cease raising rates if there are indications of an inflation breakdown. Within the next four to six months, according to him.
“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,” he said. “If they do that the stock market wants to move ahead of it. The stock market is really going to take off.”
Additionally, right now can be a wise moment to explore for chances. Golub enjoys integrated oil producers, consumer goods, industrials, and refiners in particular.
“Valuations on the market are somewhere between fair and inexpensive right now, meaning there’s more upside from p/e [price to earnings] multiples,” he added.
Golub expects the S&P 500 to conclude the year at 4,300, which would represent a gain of around 5% over Monday’s close. Over the last two months, the index has increased by about 8%. The S&P, though, is still down roughly 15% from its peak.