There won’t be a ‘textbook recession’ anytime soon—and stocks will continue their rally this summer, says investment bank Stifel

After a dismal 2022, the stock market has mounted an impressive recovery this year, led by surging big tech names and A.I. plays. And despite stubborn inflation, rising interest rates, and consistent recession predictions from Wall Street for over a year now, the main street economy has remained resilient as well. U.S. GDP rose 1.1% in the first quarter, and the unemployment rate stuck near pre-pandemic lows in May at 3.7%.

Stifel’s Barry Bannister is taking the news in stride. The chief equity strategist predicted in January that stocks, led by cyclical growth sectors like tech, would rally in the first half of 2023, owing in large part to a sharp drop in inflation. He also correctly claimed that the National Bureau of Economic Research (NBER)—the official arbiter of business cycles—would not declare a recession in the first half of the year.

Now, he’s doubling down on that call, at least in the near term.

“Since October 2022, economic resilience and policy prudence indicated to us no immediate ‘textbook’ recession…Recessions and bear markets are surprises and not so widely (perhaps universally?) anticipated,” Bannister wrote in a Tuesday research note, arguing a recession won’t hit this summer as many on Wall Street expect.

Bannister is referring to the common textbook recession definition, which is two consecutive quarters of negative GDP growth. But he also noted that he doesn’t foresee NBER declaring a recession based on their wider criteria, which looks for a “significant decline in economic activity that is spread across the economy and lasts more than a few months.”

Amid economic resilience and A.I. enthusiasm, Bannister sees this year’s stock market rally continuing until the fourth quarter as well, albeit at a much more subdued pace.

”We see the S&P 500 beginning to level out around 4,400 in 3Q [2023], wrapping the bull market from October 2022 lows,” he wrote Monday. The price target implies a mild roughly 3% gain for the S&P 500 over the coming months.

After tech stocks’ incredible performance to start the year, Bannister recommended investors look to “cyclical value” stocks—which tend to rise and fall based on the economy’s health and trade at lower valuations—in sectors like basic materials, industrials, or financials for bargains this summer.

“Most gains since October 2022 were cyclical growth (tech, et al.), but now we see cyclical value in a catch-up P/E-led rally to 3Q [2023],” he wrote, arguing that cyclical value stocks will see their valuations, in terms of price/earnings (P/E) ratios, rise over the coming months after their recent underperformance.

But Bannister has warned since January that 2023 could still be “a year of two halves.” And on Tuesday, he said that between the fourth quarter of this year and the second quarter of 2024, investors should be “watchful” for a “textbook recession” induced by the Federal Reserve.

Fed officials could end up raising rates to a point where the economy is forced into a recession, according to Bannister, who believes this “policy” risk will be preceded by a “good news is bad news” dynamic from markets—where stocks begin to fall on positive economic news because investors fear it will force the Fed to raise rates even higher to quash inflation.

On top of that, Bannister cautioned that he still believes we’re in the midst of a decade-long “secular bear market”—a process in which P/E ratios fall despite earnings rising, which leaves the S&P 500 stuck in a sideways trading range.

“We caution that a ‘secular bear market’ began in January [2022] (at ~4,800 for the S&P 500), so stay nimble to ~2030,” he told clients.

This story was originally featured on Fortune.com

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