S&P 500 to mount 'relief rally' to new record before year-end, says Piper Sandler chart analyst

Published Thu, Oct 19 20232:52 PM EDTUpdated Thu, Oct 19 20233:18 PM EDT

Piper Sandler is bullish on the strength of the S & P 500 , calling for the broad-market index to end the year at 4,825 — a nearly 12% rally from Wednesday's close — even as high Treasury yields have dented stocks. Markets are facing a broad array of hurdles, including ongoing economic headwinds, inflation worries and increased turmoil as tensions build in the Middle East. The 10-year Treasury yield has also surpassed 4.9%, trading at levels last seen in 2007. "Given the increased headline risks thrown at this market, we remain impressed by its resilience to absorb the negativity and maintain support," chart analyst Craig Johnson wrote in a Wednesday note. "We believe extreme oversold conditions in breadth, with the SPX holding above 4,200 support, keep equities poised for more than a relief rally into a seasonally bullish Q4." Underlying signs of improvement Johnson noted increased strength from earnings this week and a better-than-expected retail sales report . In particular, stocks of financial companies and names in the consumer discretionary space have perked up, he said. Major banks, including Goldman Sachs and Bank of America , topped Wall Street's expectations . Small- and medium-size companies have also been outperformers as of late, the analyst said. Though the Russell 2000 index of small-capitalization companies has slipped into negative territory for the week — off 0.7% — it has still outperformed the S & P 500, which is down about 1% week to date. Small-cap companies are known to be more closely dependent on the health of the domestic economy. The recent runup in Treasury yields has slowed the advance of equities, Johnson noted. However, market internals are showing some improvement, he said, noting that earlier this week, advancers outnumbered decliners on the New York Stock Exchange and Nasdaq by about 1.35 to 1. "Our market breadth readings remain near extreme oversold readings associated with prior cyclical lows in the equity market and should develop into a more material advance in due time," Johnson said. — CNBC's Michael Bloom contributed to this story.