Barry Gilbert on S&P 500: ‘inflation may be yesterday’s story’

There’s reason to believe that the S&P 500 could push a bit further to the upside in the coming months, says Barry Gilbert – Asset Allocation Strategist at LPL Financial.

Why is he constructive on S&P 500?

Gilbert continues to rate U.S. stocks a “modest overweight” following the latest inflation data that suggests consumer prices eased further to 4.9% in April (read more).

Historically, he said in a note obtained by Invezz, market tends to do well when inflation is trending down.

S&P 500 returns fared better in the year following peak inflation than in the year prior. For markets, it’s been the direction of inflation rather than the level that matters.

Earlier this month, the U.S. Federal Reserve delivered its tenth consecutive rate hike but signalled a “pause” which could also be a tailwind for the benchmark index moving forward.

What else does the historical data suggest?

Gilbert also made another key inference from historical data that factored into his constructive view on the equities market.

Going back to 1937, he revealed, whenever inflation tops 9.0% (as it did last year), the S&P 500 tends to return just over 20% on average in the following year.

Higher inflation at peak increases odds of a larger rebound post peak even though inflation still remains elevated a year later. It tells us that market risks from higher inflation may be yesterday’s story.

Gilbert’s view is in sharp contrast with Citi that recently warned of about a 10% downside in the benchmark S&P 500 index (source).