Due to falling inflation, Credit Suisse believes the Federal Reserve may suspend interest rate rises sooner than predicted.
According to the firm’s leading U.S. stock strategist, it will trigger a major market breakout.
“This is what’s being priced into the market widely,” CNBC’s “Fast Money” guest Jonathan Golub said on Monday. “When we go to the gas station, we all see that the price of gasoline and oil has dropped. We see that with food as well. So it’s already showing up in the data. And that’s a huge potential benefit.”
Golub maintains that the inflation “collapse” will occur over the next 12 to 18 months in a new note anticipating this week’s August consumer and producer price index data.
Futures show Food and Energy prices would fall -5.7% and -11.8% by year-end 2023, respectively. Goods inflation has fallen from 12.3% to 7.0% since February. Over the last year, services and rents have risen at a slower rate than the headline CPI (5.5% and 5.8% vs. 8.5%), according to Golub.
He also believes that signs of a drop in inflation would prompt the Fed to stop raising interest rates. His prediction: within the next four months to the half of the year.
Golub also adds that the market expects that if this glide path where things renormalize continues, the Fed will either halt or signal that they could pause in the first quarter.
“If they accomplish that, the stock market wants to outperform it. The stock market is about to take off,” he claims.
And now might be a good moment to explore possibilities. Golub favors consumer products, industrials, refiners, and integrated oil producers in particular.
“Market valuations are currently halfway between fair and affordable, implying that there is potential upside from p/e [price to earnings] multiples,” he said.
Golub’s S&P 500 year-end objective is 4,300, implying a 5% rise from Monday’s finish. Over the last two months, the index has risen by over 8%. However, the S&P is still down around 15% from its all-time high.