When the Federal Reserve finally starts reducing bond purchases, U.S. stocks will still be able to maintain the momentum that has propelled them this year.
At least that’s the view at Barclays, which lifted its year-end S&P 500 price target to 4,600 from 4,400. On Friday, the S&P 500
SPX,
closed at 4,535.43, a gain of 21% in 2021.
Strategists led by Maneesh Deshpande said the historical precedent to look at is not the so-called taper tantrum, when interest rates spiked when then-Fed Chairman Ben Bernanke first discussed the possibility of reduces bond purchases in May 2013, but the actual start of the reduction, in December of that year. Stocks dropped by 2% leading into the December meeting, and immediately recovered.
In 2017, when the Fed decided to normalize its balance sheet reduction by not reinvesting coupons, again there was hardly any equity market reaction, the strategists added.
The strategists say positive earnings surprises, and analyst revisions, are likely to continue. “Consensus forecasts for future quarters have not been revised up despite the strong earnings surprise for 2021 Q2, continuing the trend of viewing each beat as a one-off event,” said the analysts.
What could be a worry are elevated valuations, as well as a faster-than-expected pace of tapering, they add.
This post was originally published on Market Watch
