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The stock market could rise as much as 10% by the end of the year, Citi’s head of equities trading said.
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Stuart Kaiser told Bloomberg TV that the uber-bull case is now “a plausible scenario.”
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He said all the economy needs to do is avoid a recession, which will ultimately depend on the labor market.
Wall Street predicts S&P 500 highs pass the 6,000 threshold. This bullishness could be well-deserved, according to Citi’s Stuart Kaiser.
“The uber-bull case, I think, has been all year: If you avoid a recession, you get insurance cuts, right? And that’s now a plausible scenario,” said the head of the firm’s U.S. equity trading strategy company. BloombergTV on Tuesday.
If this is achieved, shares could rise another 5% to 10% by the end of this year, Kaiser said.
So far, the second half of these conditions have been met. This month, the Federal Reserve finally started cutting interest rates, in an effort to prevent a future economic slump.
This preemptive cut in insurance premiums – which amounts to a 50 basis point cut in the federal funds rate – was embraced by equity investors, and the indexes have since reached new all-time highs.
According to Kaiser, this will continue as long as a recession does not occur. But while the Fed emphasized at its last policy meeting that it was not predicting an imminent downturn, it all depends on incoming labor market data, he noted.
Since August, deteriorating employment conditions have been the main cause of fears of a slowdown. Investors will need to see the employment data remain intact in the upcoming monthly numbers or the recession outlook could become increasingly valid.
“We believe the risk reward is tricky because it really depends on a month-to-month basis,” Kaiser noted, warning that recessionary measures could easily undermine any Fed efforts to support the market.
Other banks are too keep an eye on jobs data.
According to Morgan Stanley, investors can celebrate if unemployment falls below 4.1% and nonfarm payrolls exceed 150,000. This will be the best scenario for the marketwhich keeps the momentum going.
Otherwise, the trade should prepare for the worst if unemployment rises above 4.3% and payrolls fall below 100,000.
“The Fed is not going to protect you if you get that kind of data, and that’s why we think the risk-reward is a little off right now,” Kaiser said.
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