- The S&P 500 will enjoy some upside by year-end, a top Morgan Stanley strategist said.
- Speaking on CNBC, Andrew Slimmon said the S&P 500 will "end the year closer to" where it started at around 4,778.
The S&P 500 will snap back by the end of the year as inflation likely peaked in July, according to a top Morgan Stanley strategist.
Speaking on CNBC, Andrew Slimmon said the S&P 500 will "end the year closer to" where it started at around 4,778.
"Positioning is uniformly bearish. And I suspect that will flip at some point in Q4 pushing the [S&P 500] higher into year-end, not lower," he said.
US stock markets took a tumble this week after hotter-than-expected inflation numbers sent investors fleeing from risk assets on anticipation that the Federal Reserve will likely deliver more aggressive rate hikes. On Tuesday, the Dow Jones Industrial Average fell more than 1,200 points to mark its worst day since June 2020, while the S&P 500 lost 4.3%.
The August CPI report showed inflation rose 8.3%. That's lower than July's reading of 8.5% but higher than economists' expectations. "It's not coming down very fast, but it is coming down," Slimmon said, adding that inflation peaked in July.
With inflation remaining stubbornly high, investors are pricing in a 75-basis-point rate hike by the Fed at its September 20-21 meeting. Some are even anticipating the central bank to hike rates by 100 basis points as the Fed remains focused on bringing inflation down to its 2% target. Policymakers have lifted the fed funds rate four times this year, pushing it to a range of 2.25%-2.5%.
But Slimmon thinks such tight financial conditions may not last next year.
"I think that's been the story of this year — that the consumer has taken the higher prices. That's not going to last forever," he said.
"What's been bad [this year] has been the Fed. Maybe next year earnings won't be so good, but the Fed will begin to take their foot off the brake and maybe that will alleviate some of these tightening financial conditions," Slimmon added.
In terms of the best stocks to buy under the current climate, he suggested to "buy fear and sell greed." That means investing in the likes of Home Depot and homebuilder Lennar Corporation.