The Stifel strategist who predicted April’s market rally says the best strategy right now is to be like the Road Runner: “Step out of the way and let anvil hit Wile E. Coyote — the economy. And then after that, the Fed will act and then you can move on, if you're the investor,” Barry Bannister, head of institutional equity strategy at Stifel, tells Yahoo Finance.

He said that the major Fed Reserve measures announced over the last couple of months in reaction to the fallout of COVID-19 are already reflected in the broader market, which has been trading sideways over the last couple of weeks.

“We're dealing with a real problem here in that the Fed reaction function is going to lag, and right now they're not doing incrementally more, which means that whatever they've done is already reflected in the price.”

Just days prior to the March 23 lows, Stifel predicted the S&P 500 (^GSPC) would rise to 2750 by April 30th. Weeks later the firm raised that target to 2950, which the large cap index hit during intraday trading on April 29th. That day Stifel downgraded the index to a Neutral rating.

“One of the reasons for our downgrade to neutral, is we had upgraded before the big Fed actions just as they were starting to rumor them, and then after they did them, there was just no reason to still be positive. The market reflected all that good news,” said Bannister.

‘Two mantras really working’

“What’s happening in the market is — two mantras really working, one is ‘don't fight the Fed’ and the other is ‘the market's always four months ahead of GDP’,” said Bannister.

Bannister says the current market is reflecting an inflection upward in GDP sometime later this summer — around August.

“If neither of those happen, if the Fed pulls back, or if the economy can’t inflect, then the market's going to go down. Otherwise it's just going to trade sideways here and to just digest its recent gains,” said Bannister.

“If we get the recovery of the consumer by August, then what will happen is the market rising now is justified, but it still has to consolidate in the near term until we have more visibility post August,” he added.

Near term Bannister sees a greater risk of deflation rather than inflation, despite the Federal Reserve measures to buy corporate debt.

“Deflation tends to be destructive to credit. That would really, you know, start to affect the market and call the Fed out. The Fed is buying bonds, but there's just no way they're buying enough to offset a sharp rise in bankruptcies and defaults,” said Bannister.

Ines covers the U.S. stock market from the floor of the New York Exchange. Follow her on Twitter at @ines_ferre