Tags: Bannister | Fed | rate | deflation

Stifel's Bannister: 'Premature' Fed Rate Hikes a Market Risk

By    |   Friday, 19 September 2014 01:05 PM

The stock market is performing swimmingly, with both the S&P 500 and the Dow Jones Industrial Average hitting record highs once more Friday. But the market still faces risks, says Barry Bannister, chief equity strategist at Stifel Nicolaus.

"A premature Fed rate exit and excessive dollar strength are the deflation risks to the market we see," he wrote in a report provided to Moneynews. "Although portfolio gains and the passage of time have given some investors a relaxed attitude, we remain on edge."

Talk that the Federal Reserve will raise interest rates sooner than expected has sent the dollar to a six-year high against the yen and a 14-month high against the euro. A rising dollar curbs inflation by making our imports more expensive in dollar terms.

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Many economists predict the Fed will raise rates around the middle of 2015.

"We view the current Fed's challenge as the mirror image of the late 1970s when a tight Fed fought inflation longer than expected; today a loose [Fed] must fight deflation well past wage/price acceleration."

To be sure, Bannister isn't panicking. "Our read of Fed Chair Yellen's on-the-fence rhetoric is succor to the blithely unaware hawks rather than a predisposition to hike [rates] quickly," he noted.

Bannister recently raised his year-end target for the S&P 500 by 28 percent to 2,300. The index closed at 2,010.40 Friday.

Russ Koesterich, BlackRock's chief investment strategist, isn't panicking either about the lofty levels of stocks and other financial assets. "I don't think this suggests that stocks or, let's say high-yield [bonds], are about to crash," he told CNBC.

Still, value is hard to find, he noted.

"It does mean you have to be very selective. It does mean you should have more modest expectations for what your returns are going to look like over the next five or 10 years."

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The stock market is performing swimmingly, with both the S&P 500 and the Dow Jones Industrial Average hitting record highs once more Friday. But the market still faces risks, says Barry Bannister, chief equity strategist at Stifel Nicolaus.
Bannister, Fed, rate, deflation
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2014-05-19
Friday, 19 September 2014 01:05 PM
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