By
Chimamanda U. Martha
December 15th, 2023
Declining inflation will compel the Fed to pause interest rate hikes, and induce a market rally, a Credit Suisse analyst predicts.
According to Credit Suisse, the Federal Reserve may suspend increasing interest rates sooner than expected due to declining inflation. The Swiss banking giant also predicts that the collapse of inflation will trigger a powerful market rally.
Speaking on receding inflation at a media session, Credit Suisse US equity strategist Jonathan Golub explains:
“This is actually what’s being priced into the market broadly. Every one of us sees when we go to the gas station that the price of gasoline is down, and oil is down. We see it even with food. So, it really is showing up in the data already. And, that’s a really big potential positive.”
Furthermore, Golub also reckons that inflation will tumble over the next 12 to 18 months. Further speaking on this declining inflation development, the Credit Suisse US equity strategist added:
“Futures indicate that Food and Energy prices should fall -5.7% and -11.8% by year end 2023, while Goods inflation has declined from 12.3% to 7.0% since February. Over the past year, Services and Rents are up less than Headline CPI (5.5% and 5.8% vs. 8.5%).”
Golub also predicts that the Fed may be forced to pause rate hikes over the next 4 to 6 months due to inflation collapse. Due to the aforementioned external factors influencing the traditional marketplace, Golub contends that the stock market “is really going to take off”. He also suggests that now may be a strategic time for investors to look for opportunities. On which investments to opt for, the Credit Suisse financial analyst recommends consumer goods, industrials, as well as refiners and integrated oil producers. He also hints that valuations on the market are far from expensive at the moment.
Other Information Pertinent to Credit Suisse Analyst Inflation Outlook
Meanwhile, stock futures were cautiously trading higher early Tuesday. This comes even as investors await today’s key consumer price index (CPI) report. Tuesday’s CPI report is crucial because it will almost certainly influence the Fed’s upcoming September meeting.
Futures tied to the Dow Jones Industrial Average were trading 90 points higher, or 0.28%, while S&P 500 futures nudged 0.34% higher. In addition, Nasdaq 100 futures were also trading 0.33% higher.
On the traditional stocks side of things, the outlook remains upbeat. US stocks continue to surge, extending a brief rally from last week. For instance, the Dow Jones jumped approximately 230 points, or 0.7%, while the S&P 500 gained roughly 1.1%. In addition, the tech-driven Nasdaq Composite nudged 1.1% higher.
Expectations are high that August’s incoming CPI report will reveal a 0.1% drawdown in headline inflation on a monthly basis. In addition, Wall Street will also be keeping close tabs on the NFIB small business survey, which is also due Tuesday. Furthermore, the financial markets landscape will look out for Wednesday’s producer price index report and Thursday’s retail sales data.