By Lewis Krauskopf
NEW YORK (Reuters) - The S&P 500 will likely struggle to rise much above current levels into the middle of 2024, as investors rotate away from growth stocks and the Federal Reserve holds off from interest rate cuts in the first half of next year, Stifel equity strategists said on Monday.
Stifel Chief Equity Strategist Barry Bannister and his team sees the S&P 500 "topping" around 4,650 into mid-2024. That's 1.2% above the 4,594.63 level where the benchmark index ended on Friday, which marked a new closing high for 2023.
Expectations the Fed is done hiking rates and will instead turn to rate cuts early next year have helped drive a rally in stocks in recent weeks.
But the Stifel strategists said in their outlook note that they do not see the Fed cutting in the first half of 2024, pointing to economic growth and inflation proving resilient.
Bannister and his team projected rotation in the first half from the megacap growth stocks that have led the market in 2023 to "cyclical value." The latter group of stocks includes banks, capital goods, energy, financial services, insurance, materials, real estate and transportation.
"This rotation for the (cap-weighted) S&P 500 causes the index to struggle to rise much above 4,650 into mid-2024," the Stifel strategists said in their note.
Longer-term, the strategists said they view the stocks as in a "secular bear market."
"We expect a range-bound S&P 500 in real terms to continue into the early 2030s," the strategists said in their note.