The inflation fall will spark a significant market rise, according to Jonathan Golub, Credit Suisse’s senior US strategist. He added that inflation fears were diminishing and opening the door for a significant stock market recovery.
According to Golub in an interview with CNBC on Monday, the Federal Reserve will be able to stop raising interest rates in the spring, which will lead to a significant increase in stock prices.
The Treasury inflation-protected securities (TIPS) breakeven rate, which gauges inflation expectations, was mentioned by Credit Suisse’s senior US stock strategist. The indicator suggests that by this time next year, Consumer Price Index (CPI) inflation, which was 8.5% in July, will fall under the Fed’s 2% target rate, he said.
Golub stated that the price of items reached a peak in March and has since been declining. Additionally, customers are witnessing a decline in food prices as well as petrol prices at the pump.
He said that lower inflation was showing through in the numbers already, and that was a really major potential positive.
Golub also made a positive stock market forecast. He stressed that despite rising interest rates, the cost of corporate borrowing is still affordable, which means indebted enterprises won’t have a difficult time repaying loans.
Additionally, he claimed that the price-to-earnings ratios for companies are currently rather favorable.
Golub added that there was greater potential from PE multiples at the moment because market valuations were between fair and affordable.
According to Golub, the result of a more optimistic inflation outlook and reasonable equities valuations might be a significant stock market surge in the first quarter of 2023.
Investors anticipate Fed Chair Jerome Powell and his colleagues will quickly declare a halt to interest-rate hikes after realizing that inflation is declining, he added.
He predicted that the stock market would soar if they did that.
Golub’s most recent remarks reaffirm his previous warning that the market’s expectations for inflation were falling and that the Fed was in danger of stifling the economy with its ongoing rate hikes.
The strategist at Credit Suisse continued by saying that the Fed will keep emphasizing its commitment to do “everything it takes” to combat inflation since abruptly altering course may ignite the economy and send prices soaring once more.
