S&P 500 Could Dip Below 5000 If High Inflation Persists: RBC By Investing.com | Old North State Wealth News
Connect with us


S&P 500 could dip below 5000 if high inflation persists: RBC By Investing.com



The could dip below the 5000 threshold if macroeconomic pressures, most notably high inflation, continue to persist, RBC Capital Markets analysts said in a Monday note.

In their report, the investment bank stresses that the market’s current price-to-earnings (P/E) ratio could decrease under prolonged inflationary pressures and a lack of anticipated interest rate cuts by the Federal Reserve.

RBC’s base model, which leverages consensus forecasts on economic variables, suggests that the S&P 500 should trade at around 21.5x earnings by the end of 2024, potentially placing the index at 5100 to 5300 if their earnings per share (EPS) forecast of $237 for 2024 is accurate.

However, in a stress test scenario considering no Fed rate cuts, higher-than-expected inflation, and 10-year Treasury yields not rising above 5%, the P/E ratio could drop to 20.8x, pushing the S&P 500 down to a range of 4900-5100.

In another stress test, where inflation exceeds 3% and the 10-year yield rises to 5.5%, the trailing P/E retreats to 19.1x “and points to about 4,500 for fair value for the S&P 500 on our EPS forecast and the 4,600-4,700 range using consensus EPS,” RBC strategists said in a note.

Meanwhile, RBC also reflected on the latest performance of small caps versus large caps.

Small caps, as measured by the , have been retesting their relative lows compared to the S&P 500, the investment bank notes.

Despite a brief rally driven by Fed rate cut optimism in early May, small caps have struggled, with only 62% of Russell 2000 companies beating consensus estimates in the recent reporting season, compared to 77% for the S&P 500.

Read the full article here


Copyright © 2022 ONSWM News. Content posted on the Old North State Wealth News page was developed and produced by a third party news aggregation service. Old North State Wealth Management is not affiliated with the news aggregation service. The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date the articles were published. The information presented is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities discussed.