- RBC Capital Markets’ Lori Calvasina maintained a base-case scenario for the S&P 500 ending the year at 4,100.
- But she told Bloomberg TV that the broad market index could reach 4,500, representing upside of more than 12%.
- But inflation would have to cool enough for the Federal Reserve to cut rates.
Though her firm’s base case remains 4,100 points, which represents about 2.5% upside from current levels, she said valuation models point to the possibility of bigger gains, or about 12.5%.
But for that to happen, inflation would have to cool enough for the Federal Reserve to start cutting benchmark rates this year, a possibility that has faded amid recent data indicating a still-strong economy and sticky inflation.
“I know that’s a more precarious assumption, but that’s what the model gives us,” Calvasina said.
The Fed has already raised rates by 450 basis points in the past year, with markets anticipating another 50 to 75 basis points later this year.
But Calvasina also cited low investor sentiment as another factor in her forecast potentially skewing to the upside.
“If you look at the depths of individual investor sentiment at the end of last year, we were basically down around financial crisis lows for an extended period of time,” she said. “And historically, when you’ve been below 10% in favor of the bears over the bulls, it set you up for about a 15-16% return on the year.”
Calvasina is not alone in holding a more optimistic outlook on what’s to come. Fundstrat’s Tom Lee published a note on Wednesday, saying that most of the Fed’s previous tightening cycles coincided with stock market advances.
In an interview with CNBC, he added that deflation in certain sectors shouldn’t be overlooked, saying: “I think you might be printing 2% inflation starting in the summer.”