REUTERS/Lucas Jackson
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Stocks have room to rally 14% this year, according to Piper Sandler strategist Craig Johnson.
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Johnson pointed to various indicators that suggest the S&P 500 is oversold.
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Stocks look fairly resilient when considering the current array of economic headwinds, he said.
The S&P 500 is poised for a significant rally by the close of the year, as stocks display signs of being oversold, as per Piper Sandler strategist Craig Johnson. Johnson has restated his price target of 4,850 for the benchmark stock index, implying a 14% surge in stocks by the end of 2023, even amidst numerous market pressures such as high interest rates, elevated oil prices, and geopolitical uncertainty. Despite these obstacles, stocks have demonstrated considerable resilience, with the S&P 500 only 8% below its 52-week high of 4,607.
Furthermore, several technical indicators indicate that investors have become excessively bearish on the market. One example is the deterioration of S&P 500 breadth, which measures the number of winning stocks in the index. Johnson noted, “We’re already seeing this market fairly oversold on some overbought-oversold oscillators.”
In recent weeks, other contrarian buy indicators have emerged as stocks continue to slide. Strategists have urged investors to consider purchasing equities after Bank of America’s Bull and Bear Indicator signaled “extreme bearish” territory. Additionally, the stock market’s volatility gauge, with futures for the CBOE Volatility Index surpassing a key threshold of 20, suggests potential upside for stocks despite recent selloffs driven by rising bond yields and concerns about prolonged higher interest rates.
Johnson said, “You’re getting a lot of the bad stuff out of the way. The market is already sold off to a degree here. But I think once we get some clarity brought into what’s going to happen in Washington, get through the earnings seasons, these kinds of things, I think there’s a real meaningful pop. And we still think there’s still decent upside to go here.”
Markets widely expect that the Federal Reserve will conclude its interest rate hikes, potentially leading to a decrease in bond yields. According to the CME FedWatch tool, investors are pricing in a 98% chance that rates will remain unchanged at the Fed’s November policy meeting. While investors await the majority of S&P 500 earnings, financial results from firms that have already reported appear strong. FactSet data reveals that of the 17% of S&P 500 companies that have disclosed their results, 73% have exceeded earnings per share estimates.
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