©Reuters.The US economy is headed for a 'landfall' – Wolf
Wolf Research strategists revised their base case in a note to clients on Tuesday, projecting a “no-landing” outcome for the U.S. economy and offering an optimistic outlook.
The brokerage forecasts that U.S. real GDP growth will exceed 2% year-on-year in 2024, with inflation trends continuing to exceed 2.5%. This change reflects stronger-than-expected economic resilience and suggests sustained growth rather than stagnation or stagnation.
Key factors influencing this outlook include the Federal Reserve's policy direction, inflation trends, and the performance of major economic sectors.
“The economy has performed much better than expected over the past three months,” the strategists said in a note.
“Despite the rapid rise in GDP expectations and the recent upside in inflation, Fed Chairman Powell
“It appears that they are still determined to reduce the amount by three to four times this year,” they added.
Strategists believe the Fed intends to allow the U.S. economy to “overheat,” suggesting a scenario in which growth continues with higher-than-ideal inflation.
“Ultimately, we believe inflation will be more robust than consensus expectations, but don't think so.”
“Markets will be worried about this until at least the second half of the year and beyond,” they wrote.
“The rise in breakeven points and the recent rally in gold suggest that the market does not expect the Fed to return inflation to 2% anytime soon.”
The strategists also raised their 2024 year-end price target to $5,300, based on a 20x forecast for 2025 operating earnings per share (EPS) of $265.
The company also revised its operating EPS estimates upward to $245 in 2024 and $265 in 2025, compared to consensus estimates of $244 and $277, respectively.
Their base case, called a “no-landing,” expects market valuations to remain strong, supported by the Federal Reserve's dovish stance. Wolff expects the price-to-earnings ratio (P/E) to remain stable through the end of the year, reflecting the trends observed in 2021.
“We expect EPS revisions to remain the primary driver of sector and sub-sector rotations unless our 'no-land' base scenario changes,” the note said.
Regarding market breadth, Wolf Research analysts suggest that a significant contraction could signal a significant bullish or bearish turn, reminiscent of past market cycles.
Analysts predict that overlooked cyclical sectors, such as certain industries and semiconductor companies, will do well as the market expands. Additionally, we expect small-cap stocks to outperform on the back of strong growth prospects and strong leading indicators.
