Wall Street has seen its share of outstanding prognosticators over the past 100 years. From Warren Buffett, Carl Icahn, Stanley Druckenmiller and Peter Lynch to Kyle Bass, Bill Ackman, Dan Loeb and so many others. These are investors who have had the courage to take a hard stand, especially during difficult circumstances, and then to put their money where their mouth is. The same task of finding the correct path is also in the hands of the chief equity strategist at the top firms on Wall Street. One strategist and his team have made stunningly remarkable calls this year and in the past.
Barry Bannister, the head equity institutional strategist, and his staff at Stifel have far and away made the most remarkable predictions in market direction this year. We have covered Bannister and his work for years here at 24/7 Wall St., and he consistently has delivered some of the most spot-on calls. 2020 may go down as one of his best years and calls ever.
Into the teeth of the withering sell-off back in March, the Stifel team had the foresight to make a prediction for a strong market bounce. On March 19, just four short days before the final surge of selling and investor capitulation on March 23, the Stifel prediction was for a relief rally that would carry the S&P 500 to 2,750 level by April 30. On March 23, the index hit an intraday low of 2,191 and closed at 2,237.
We covered the incredibly bold prediction at the time, and while some were very skeptical of the call, Bannister then made the prerequisite financial media rounds giving his firm’s rationale. In early April as a surge of alarming news on the COVID-19 pandemic and other issues flooded the airwaves, Stifel came out and defended the call, telling clients to stand their ground. In the middle of April, as the rest of Wall Street was finally on board, the firm raised the end of April target to 2,950. On April 30, in line with the laser-like call from Stifel, the S&P 500 closed at 2,912, after hitting an intraday high of 2,930 and after trading to 2,950 level the day before.
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Here we are at the end of May, with the S&P 500 finally breaking through the huge overhead resistance that was perched at the 3,000 level, after a month of sideways trading and consolidation. Right on time, Bannister is out with a summer prediction that should make investors feel somewhat safer after what was called “the most hated rally ever” pushed prices much higher off the March lows.
In a new and comprehensive research report, Stifel again raises the firm’s price target on the S&P 500, this time to 3,250 by August 30. In the report, the analysts presented this summary:
Following our downgrade to a neutral equity market view on April 29, 2020 with our report “We hit our 2,950 by April 30, 2020 S&P 500 target but decline to raise further pending second quarter data” the S&P 500 has traded roughly sideways for a month. We now raise our S&P 500 price target to 3,250 by Aug-30, 2020 (in 3 months), supported by economic survey data improving/bottoming (consumer, services, industrial) and our expectation that the S&P 500 price to earnings expands (at prevailing low real bond yields) to offset weak earnings per share, typical of late-stage recession periods. Our unchanged view of a positive U.S. GDP inflection in the third quarter of 2020 favors reflation candidates (beneficiaries of a weaker dollar, steeper yield curve), which are Financials, Energy, Materials and Industrials.
The extensive Stifel report noted that with a backstop of enormous liquidity, which came in response to a total lack of it in late March, and the potential for an upturn in gross domestic product by late August, that should help carry the S&P 500 to the firm’s 3,250 handle. The analysts point out the massive stimulus provided by the Federal Reserve and the government outpaces every post World War II cycle.
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In terms of sector selection, and we noted the Stifel reflation candidates above, the firm feels that the defensive/cyclicals that led as the market went through the 30-day trading free fall that peaked near the end of March should be avoided now. Consumer staples, utilities and the like are not the place for investors looking for alpha over the summer to be positioned.
With the stock market always operating as a forward-looking vehicle, the analysts also note that the surge higher in the S&P 500 closing above the massive overhead resistance at the 3,000 level this week should bode well for investors, and they noted this:
The S&P 500 crossed above both the 50-day moving average (dma) and 200dma on 5/26/2020, which historically signals a price gain of about 8% in the following 3 months; in this case, that would be 3,250 for the S&P 500 by the end of Aug-2020 estimated.
They also said this when discussing the wildcard, which remains the COVID-19 pandemic:
U.S. COVID-19 attributed deaths appear to have peaked this season in April 2020 and we see close to zero COVID-19 attributed U.S. deaths by the end of June-2020; although that is positive, we find the government (and media) reaction to COVID-19 to be difficult to forecast / heavily politicized with unpredictable economic effects.
Needless to say, earnings for the S&P 500 will be horrendous this year. The Stifel forecast is for $109 per share, and that compares to the higher Wall Street consensus of $111. The analysts see 2021 earnings at $149, which is again below the more aggressive Wall Street figure of $163.
It should also be noted that the sectors the firm favors going forward, especially financials and energy, have been hammered and have underperformed during the recent rally. However, against the backdrop of an improving and opening-up economy, they could benefit the most, and perhaps offer the best risk/reward and upside potential.
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For many Wall Street salespeople and traders, there was always a joke that went somewhat like, “In my next life I want to be either a stock analyst or strategist or a weather person on TV.“ The gist of the joke was that if they are wrong they just make new predictions the next day. That is not the case this year at Stifel.
Bannister and his staff made one of the most remarkable market calls in decades at a time when there were zero bids across Wall Street, and everything, including gold and Treasury bonds, was being sold to raise much-needed cash and liquidity. Then they doubled down when things again looked shaky and knocked another one right out of the ballpark. Somewhere Baron Von Rothschild was smiling.
While the Stifel team used years of historical data and research data to reference and back up their call, they had to use something else that many on Wall Street are reluctant to use. That was the courage to publish when the proverbial baby was being tossed out with the bathwater, and the market was literally in one of the worst free falls ever. That is something few on Wall Street have ever done, now or in the past. Will they be remembered for this great call? That is a question to pose to Elaine Garzarelli perhaps.
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