Don’t get too giddy if the S&P 500 index market eclipses the 4,500 mark, because a U.S. recession still looks likely, according to John Canavan, lead U.S. analyst at Oxford Economics.
Bond yields retreated, stocks rose and the dollar
DXY,
sank to its lowest level since April 2022 on Wednesday, after U.S. consumer prices cooled more than expected in June, adding to hopes for the Federal Reserve to soon end its rate-hiking cycle.
Bullish tones about the Fed’s chances of creating a soft landing for the U.S. economy, while taming high inflation through higher rates, could lift the S&P 500 back above 4,500 in the months ahead, Canavan said, in a Wednesday client note.
However, he thinks an economic slowdown starting later this year will prevent the S&P 500
SPX,
from returning to its 2022 record high. The stock market also likely will lose ground later in 2023, and struggle for gains in the decade ahead (see chart).
The S&P 500 gained 0.7% on Wednesday, closing at 4,472.16, its highest finish to a session since April 8, 2022, according to Dow Jones Market Data. It also closed about 6.8% below its record finish of 4,796.56 on Jan. 3, 2022.
The Dow Jones Industrial Average
DJIA,
finished about 6.7% below its record close on Jan. 4, 2022, while the Nasdaq Composite Index
COMP,
ended about 13.3% off its record close on Nov. 19, 2021, according to Dow Jones Market Data.
A U.S. recession could see the S&P 500 fall “back to test the 50% retracement of the rally since last October, which is currently just below 4,000,” Canavan said.
The S&P 500 set a one-year low of 3,577.03 on Oct. 12, 2022, according to Dow Jones Market Data.
Related: U.S. stocks rise as bulls get ‘wish’ on inflation report, yet soft landings for Fed are ‘pretty improbable’
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