US stocks will perform 'pretty well over the next several months' and the risk of a recession is waning, says Credit Suisse's chief US equity strategist

• Stocks will see some upside in 2023 and the threat of a recession is fading, Credit Suisse's head of US equity strategy said.
• Jonathan Golub predicted a price target of 4,050 for the S&P 500 given the potential for a pickup in consumption.
• Falling inflation expectations and a healthy labor market mean consumers will achieve more spending power, he said.

Credit Suisse's Jonathan Golub is hopeful about the US stock market and the broader economic outlook for 2023.

In a Wednesday interview with Bloomberg, the bank's head of US equity strategy cited a combination of falling inflation expectations and a healthy jobs market — which could fuel a pickup in consumption — as the main reason for his optimism.

"More than anything else, it's this twin issue of the job market being so strong that people are feeling really confident in their ability to make a capital purchase, whether that's remodelling their kitchen or buying a new home," Golub said.

"The second thing is, CPI is expected to fall to 2% roughly this time next year and that means the market is of the belief that no matter what the Fed says, the likelihood is that the Fed is going to ultimately get closer to their inflation target when we leave 2023 — and that's a positive, and that's what the market is ultimately fixated on," he added.

"I think that's why stocks are going to do pretty well over the next several months," Golub continued, projecting a price target of 4,050 for the S&P 500 without giving a timeframe.

Stocks have suffered significant losses this year as the Federal Reserve raised interest rates aggressively to rein in inflation that hit 40-year highs. The US central bank has hiked benchmark borrowing costs from virtually zero as recently as in March to more than 4% today.

Such monetary tightening has fueled a more than 20% slump in the S&P 500 this year, while the Nasdaq Composite slid almost 35%.

Meanwhile, inflation has shown signs of cooling, with the annual rate easing to 7.1% in November from as high as 9.1% in June. Despite such progress, top voices, like 'Big Short' investor Michael Burry and Elon Musk, have rang the alarm on a recession hitting the US economy next year.

Golub, however, appears to go against the grain on recession warnings. "The data looks a lot less recessionary that it did three, four months ago," he said.

"The big story here is that inflation expectations are falling which means people are going to spend less money on the things they want to buy but wages don't look like they're going to fall as much, so for the average consumer, they're going to get a stronger wage increase," he added.

"The things they buy aren't going to go up as much as their wages and yet jobs are really plentiful, and when you add that all together, it means a consumer is strong and if the consumer is stronger, the likelihood of a recession in the next six months or so is less than everybody thought it would be," Golub said.