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‘Stocks could really rally,’ bullish Wall Street analyst says despite pullback

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Oppenheimer Chief Investment Strategist John Stoltzfus joins Yahoo Finance Live to discuss why he's not yet ready to revise his bullish S&P target lower, the pullback in the stock market, and Fed policy.

Video transcript

JULIE HYMAN: A smidge of a breather today perhaps after the big, big selloff that we saw yesterday. The NASDAQ's been sort of bouncing around between gains and losses, even as the Dow and S&P remain in the red. Yesterday, we had the biggest wave of selling since June of 2020, as concerning retail earnings rehashed worries about the impact of rising inflation.

Joining us now to discuss, Oppenheimer chief investment strategist John Stoltzfus. And John, your claim to fame right now is that you're the most bullish guy on the Street, right, with your S&P 500 target for year end of 5330. Give the people out there some hope. What's the silver lining? What's the hopeful narrative as we look at the selling that we've been seeing in the market?

JOHN STOLTZFUS: Well, I think, Julie, first of all, thanks for having me on the show. But I've got to say that when we look at the scene, it reminds us of a lot of other pullbacks we've seen. Any time that the Fed is either going to add liquidity to the system or take liquidity out, invariably, participants within the market who are detractors of the Federal Reserve will say the Fed is going to fail. The Fed will not pivot if it gets it wrong.

And indeed, as time comes to pass, sometimes quicker, sometimes not as quick, the Fed takes the right action. It makes corrective measures, you know, like the pivot in 2018, like the pivot that we just saw at the end of last year, 2021. The Fed should come through here with being able to curb inflation. We think the market will wait. It's going to take a little bit here. I'm not sure if it's going to be a month or two months, maybe a full quarter, before we get to see the effects of Federal Reserve action on inflation that points out to the market that the Fed, indeed, is not pushing on a string.

BRIAN SOZZI: John, you know, you're a friend of our show. We've followed your work for many years. I'm personally a fan. But your S&P 500 target, is there a probability that you now have on that being hit this year?

JOHN STOLTZFUS: Oh, and one thing. You know, when I think of 2009, which was a year in which the market was-- first fell 27% from a peak in January to March 9, the market, from that low, moved higher by 64% to the end of the year. And as I recall, technology was the best performing sector that year. And when we look back at that, we think stocks could really rally. So we're waiting here a bit before we start addressing any thoughts of trimming our target at this point.

Right now, I think it would be a 36% rise from where we are right now to get to that 5330. But that would be a lot less than the 64% jump that the S&P 500 had in 2009. And by the way, it did it again. It had done it earlier in 1994. Tech stumbled, fell out of bed, declined about 18%, then rallied some over 20% to the end of the year. And the S&P, in that case, did not go as higher. But technology and the S&P tend to rally very strongly when people realize that the Fed actually knows what it's doing.

BRAD SMITH: The Fed has come out and said in the past as well that they expect inflation to begin to dampen, at least in the second half of this year. But we do in the interim period, you still have higher energy costs that are impacting consumers, that also impacting where else they are putting some of their discretionary dollars to work. And so in reality here, you know, how does that change the time frame if the Fed is not able to meet that target, the time frame when you would actually adjust your own kind of target for the end of the year?

JOHN STOLTZFUS: Well, we'll see. We'll have to take a look. We'll be looking at economic data. We're fundamental strategists, so we rely a lot on economic data. We also rely on trends in earnings and revenues for S&P 500 companies. You know, nobody talks about it, but right now, the S&P 500 earnings for the first quarter of this year are up around 9.6% on top of, as I recall, a double digit revenue growth.

And technology, by the way, growth is up 10% in the first quarter in terms of earnings growth on the back of very attractive revenue growth. And you've got nine sectors with positive earnings growth in Q1. So, all of that accompanied, it gives us the thought that we'll be able to have an idea as to whether we are being overly anxious or too positive or just about right when we readdress this target price in a few months.

JULIE HYMAN: John, I know--

JOHN STOLTZFUS: If not sooner.

JULIE HYMAN: Yeah, John, I know you're a big picture guy, and you're talking about those earnings from the, like, 10,000 foot view. But I want you to zoom in a little bit on Walmart and Target and some of the other retail earnings, and tell me what your conclusions are based on the commentary we got from those companies about what consumer spending is going to look like for the next six months.

JOHN STOLTZFUS: All righty, well, I'd be more prone to refer you to Brian Nagel for specifics on those companies. As a portfolio manager, Oppenheimer limits me somewhat to the discussion.

But I can respond to this question that you've asked me, in that if I look at that, if you look at Home Depot versus Lowe's, Target or Target, versus other companies, a Walmart, you'll see that, indeed, some of these big outfits that sell items that are relatively affordable actually just erred in the first quarter when they over ordered a lot of things, probably in the fourth quarter of 2021, because they feared they wouldn't get enough through the ports, and then they wound up with too much inventory. They paid higher prices. It hit them in the first quarter. So I'm likely to be more patient and also to take the retailers on an individual basis.

What we saw over the last few days is the market participants have knocked down stocks, the good, the bad, and the ugly, practically equally and across the sectors.

BRAD SMITH: When you see companies like Costco, BJ's, and even subsidiaries like Sam's Club within Walmart, doing well, what does that signal to you about where we are in relation to a potential recession?

JOHN STOLTZFUS: It signals to me that overall, the consumer sentiment has weakened significantly, but not desperately on both the Michigan and the Conference Board's sentiment indicators. When it comes to shopping, Americans are proving, as they usually do, to be remarkably resilient. In essence, what they do is, in my experience, the US consumer will spend like a drunken sailor in good times. And when times get bad, they get a vacuum cleaner, vacuum the coins behind the sofa and behind the backseat of the car, and then they shop at cheaper stores as a rule.

JULIE HYMAN: Well, or right now, they're spending those pennies on gasoline and flying, it seems like as well. John, thanks so much. John Stoltzfus, it's good to see you and catch up. Oppenheimer chief investment strategist there. Appreciate it.

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