Top Wall Street economist Michael Gapen believes the market’s record rally has stamina.
The Barclays head of U.S. economics research cites a calm economic backdrop as a major driver.
“We’re kind of sitting at a trend-like outlook where growth is around 2% this year,” he told CNBC’s “Trading Nation” on Friday. “It’s a very benign outlook. In some ways, it’s boring. I kind of think a boring U.S. outlook is actually pretty good for risk assets.”
Gapen’s enthusiasm is chiefly due to a reduction in risk factors stemming from the signing of the U.S.-China phase-one trade deal and the positive impact the U.K. election will likely have on Brexit.
But there’s one more vital ingredient keeping stocks in record high territory: Monetary policy. Gapen thinks it’s virtually impossible the Federal Reserve will hike interest rates this year.
“The key is the Fed is on the sideline,” he said. “With the Fed committed to being on the sideline, I think that’s what’s helping equity markets move higher.”
With just 12 trading days in the books for 2020, the Dow and S&P 500 are up 3% this year. So far this year, the Dow has seen seven all-time highs while the S&P has seen nine.
Overall, Gapen predicts the market will hold on to record gains and have another winning year.
“Our steady-ish as she goes trend-like outlook would be consistent, with say, equity market performance of around 8% to 9% this year given where we expect earnings growth to be,” Gapen said.
Barclays’ Michael Gapen says the economic backdrop supports the historic market highs.