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They believe that even though these risks are generally bad signals, this time around, they could actually give the stock market a boost. Specifically, if the macroeconomic data begins to weaken, it might encourage investors to think that interest rates will drop and make stocks more attractive.
“We remain constructive with the view that lower rates from softer macro data will set up stocks for another leg higher in the coming quarters,” strategists said.
“Considering today’s optimistic sentiment, historically-high valuations, and recent upturn in some inflation data, there are many worried about, if not hoping for, a “healthy” market correction,” they added.
Strategists point out that big drops in the market usually happen because of three big worries: rising interest rates, higher unemployment, or global tensions.
Of these, Piper Sandler sees rising interest rates as the most immediate threat. Yet, the narrative since late October 2023 has been one of resilience, with the S&P 500 climbing in response to a peak in bond yields, suggesting a nuanced market response to broader economic signals.
