The US economy will tip into a mild recession this year, but investors should brace themselves for a market rally, according to Invesco’s global market strategist, Brian Levitt.
He said the Federal Reserve would ditch its monetary policy tightening in the first quarter of 2023, with markets pricing in an appropriate terminal federal funds rate of about 5%. Then, stocks will gradually rebound, coinciding with an economic recovery as a high-inflation environment ends.
“I believe the market has bottomed for this cycle,” Levitt told Insider.
By the end of the year, he predicts markets will finish the year positively, with the S&P 500 above 4,000, representing more than a 3% upside from current levels.
To be sure, stocks will look different compared to during the pandemic, when speculative growth was “incredibly overvalued,” Levitt said. But as long as investors bear some near-term volatility, it could be time to add risk back into portfolios.
“We are in the period where you may have some near-term downside risk, but the challenge for investors, if you’re trying to time a 5% to 10% move down, you run the risk of missing the recovery,” Levitt said. “We should try to be positioned for the next couple years for a sustained recovery.”