How stocks can climb 10% by the end of the year, says Citi US boss

• The stock could rise as much as 10 percent by the end of the year, Citi’s head of equity trading strategy said.

• Stuart Kaiser told Bloomberg TV that the uber-bull case is now “a plausible scenario.”

• He said the economy just needs to avoid a recession, which will ultimately depend on the labor market.

Wall Street is forecasting S&P 500 highs that break the 6,000 mark. That optimism may be well-earned, said Citi’s Stuart Kaiser.

“The uber-bull case, I think, for this whole year has been: You avoid a recession, you get insurance discounts, right? And that’s now a plausible scenario,” said the head of the US equity trading strategy firm for Bloomberg. TV on Tuesday.

If that plays out, stocks may rise another 5 percent to 10 percent by the end of this year, Kaiser said.

So far, the second half of these conditions have been met. This month, the Federal Reserve finally began cutting interest rates in a move aimed at preventing a future economic crisis.

This preemptive reduction in “insurance”—amounting to a 50 basis point cut in the federal funds rate—was embraced by equity investors, and indices have hit new highs ever since.

In Kaiser’s view, this will continue as long as a recession does not materialize. But while the Fed stressed it does not forecast a rate cut during its latest policy meeting, it all depends on labor market data, he noted.

Since August, the decline in employment conditions has been the main driver of fears of a slowdown. Investors will need to see the labor force numbers remain intact in the upcoming monthly data, otherwise the recessionary outlook could become increasingly valid.

“Our view is that the risk reward is tough because it really depends on a month-to-month basis,” Kaiser noted, warning that recessionary prints would easily spoil any Fed efforts to support the market.

Other banks also track job data.

According to Morgan Stanley, investors can celebrate if unemployment falls below 4.1 percent and nonfarm payrolls top 150,000. This will be the best case scenario for the market, maintaining the momentum.

Otherwise, trading should brace for the worst if unemployment rises above 4.3% and wages fall below 100,000.

“The Fed is not going to protect you if you get that kind of data, and that’s why we think the risk reward is a little bit weak right now,” Kaiser said.

Read the original article on Business Insider