Global financial markets are experiencing declines today as government bond yields continue to rise. In the United States, yields are reaching new cycle highs, putting pressure on stocks. The 10-year Treasury yields have risen by 5 basis points to 4.97%.
Recent economic data, including strong jobs numbers and retail spending, have exceeded economists' expectations, providing evidence of robust economic growth in the third quarter.
This positive data is likely to improve the outlook for corporate earnings and potentially help the S&P 500 break free from a nearly year-long profits slump. However, the impact of rising interest rates on the economy and corporate profits is a concern.
It is expected that while the strong data delays the economic slowdown, the effects of higher interest rates will eventually be felt.
According to Bloomberg’s analysis, it has taken an average of 11 months from the peak of interest rates in a tightening cycle for stocks to decline from their highs.
While many analysts are increasingly concerned about the near-term outlook for stocks, Piper Sandler analysts are “impressed” by S&P 500’s “resilience to absorb the negativity and maintain support” of 4,200.
“We believe extreme oversold conditions in breadth, with the SPX holding above 4,200 support, keep equities poised for more than a relief rally into a seasonally bullish Q4,” the analysts wrote in a note to clients.
More precisely, they see the S&P 500 hitting 4,825 by year-end, which would mark a new record high.
“As long as the SPX remains above 4,200 support, we suspect it is just a matter of time before bulls take firmer control of equities,” the analysts added.
The index closed at 4,314.60 yesterday, suggesting there’s a near 12% upside potential to Piper Sandler’s price target.