The broader market will march higher in the second half of the year and investors should rotate to cyclical growth stocks, according to Stifel.
Even though a secular bear market began in 2022, that landscape provides trading opportunities for a decade and there is one now, strategist Barry Bannister wrote in a note Friday.
The S&P 500 ( SP500 ) ( NYSEARCA: SPY ) will see a P/E-led relief rally to 4,200 in the third quarter, Bannister said.
Among the supporting factors Stifel sees are the global manufacturing PMI staying above 50 in H2, indicating a slowdown but not a recession, equity risk premium in the S&P chopping lower to 3% by year end from 3.3% currently, and a topping 10-year real yield ( TIP ) indicating "peak Fed."
Based on this S&P forecast, Stifel is switching from defensive stocks and going Overweight cyclical growth.
That means subsectors like software ( XSW ) ( IGV ), semiconductors ( SOXX ) ( SMH ), media and entertainment ( IEME ), technology hardware ( XLK ) ( IYW ) and retail ( XRT ).
A slowdown will continue to pressure commodities and oil ( USO ) ( CL1:COM ) will fall to $75-$80 in Q3, Bannister said.
And weak oil may be what brings Vladimir Putin to the table, leading to a cease-fire given that the Ukraine War's cost to the West is currently "untenable," he added.
"The weak political position of the (remaining) Western leaders (esp. with gas heading into winter) and our view of sharply lower near-term oil prices affecting Russia (possibly below $75-80/bbl.) increase the likelihood, in our view, of a Ukraine cease fire (which then becomes a frozen conflict). The West is already slow walking arms, while Ukraine can and is using its political capital for EU admission (at last, a quid pro quo!)."
Last week BofA slashed its S&P target .
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Stifel sees S&P relief rally, further drop in oil and a Ukraine cease-fire