Return to Normal Puts S&P 500 at 5,000 in June, UBS’s Lovell Says

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(Bloomberg) — A less volatile year is ahead for markets, should a forecast by UBS Global Wealth Management’s Nadia Lovell play out.

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“Next year, we think financial markets will discover what normal looks like from a growth and an inflation standpoint,” the firm’s senior U.S. equity strategist said Friday in an interview on Bloomberg TV’s Surveillance. “In that environment, the S&P can reach 5,000 by the time we get to June of next year.”

At about 4,700 on Friday afternoon in New York, the index is up 25% in 2021.

After the tumult of the pandemic, Lovell sees the U.S. economy more fully reopening as vaccines proliferate, likely easing the effects of the health crisis. In Lovell’s view, most of the growth will be generated in the first half of next year, with the stock index only adding about another 100 points from June to the end of 2022, meaning an overall increase of about 8% from current levels.

“It will be a year of two halves,” she said. “The first half being elevated economic growth, looking for growth of in the range of 4-to-5% and high inflation. But as the year progresses and things normalize, we’re looking for the second half to be lower growth, still healthy and above trend, and more subdued inflation.”

The strategist sees inflation dropping below 2% by the end of 2022, from the annual rate above 6% seen last month, as some of the “more flexible” price components like food and energy that have seen the biggest increases will show the fastest declines.

The flareup of Covid cases in Europe, and the possible effect on economies, provide a cautionary note, Lovell said.

“The rise in cases overseas is concerning,” she said. “That could translate into the U.S. That is why we don’t think we’re out of the woods.”

In fact, the persistence of the pandemic gives the Federal Reserve reason to “be patient” in shifting its accommodative monetary policy, Lovell said.

“We don’t think the Fed will be overly aggressive, particularly as Covid cases haven’t fully resolved yet,” she said.

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