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According to Stifel’s Barry Bannister, stocks may face a 10% decline by year-end.
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The bank’s chief stock strategist highlighted the weakening job market and the risk of persistent inflation.
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Bannister noted that interest rates are unlikely to fall below 3% without an economic downturn.
The stock market may be on the verge of a correction as we approach the end of the year, according to Barry Bannister at Stifel.
The chief strategist of the investment bank advised investors to exercise caution as we enter the fourth quarter. He attributes this to a slow job market and the possibility of inflation remaining stubbornly high—two factors that could contribute to a potential 10% slump in the S&P 500, as he recently revealed in an interview with CNBC.
“Taken together, we see an economy slowing down, particularly in terms of employment—there are many alternatives available, and the market appears overpriced. Thus, we recommend that investors remain cautious as we move into the late third and fourth quarters,” Bannister stated.
The declining job market has already drawn the attention of investors, who are on the lookout for indicators of ongoing economic weakness. According to the latest Consumer Confidence Survey from the Conference Board, 18% of U.S. consumers reported difficulty in finding jobs in September, an increase from 17% in the previous month.
Moreover, U.S. companies announced over 75,000 job cuts in August, marking a staggering 193% rise compared to the previous month, as detailed in a report by Challenger, Gray & Christmas.
Inflationary pressures may also persist, complicating the market’s outlook on significant rate reductions, Bannister suggested. Much of the market anticipates that interest rates will drop to 3% or lower by mid-next year, according to the CME FedWatch tool. However, Bannister argues that this is improbable without a corresponding slowdown in the economy, which would also be negative for stock performance.
“It’s challenging to justify interest rates dropping below 3% without a corresponding economic slowdown,” Bannister commented. “Absent a slowdown, and if we continue to leverage the limited resources available, we might end up in a situation without a clear resolution, where rates and yields are unlikely to see dramatic decreases.”
Bannister also indicated that investor sentiment may be overly optimistic, considering stocks are trading near their all-time highs. According to the latest Investor Sentiment Survey from AAII, nearly half of all investors expressed a bullish outlook for stocks over the next six months.
“I have no issues with expectations of a more dovish Fed in 2024. However, it’s the 2025 expectations that seem to be factored in, along with the significant 31% annual rise in the S&P 500. The overall market sentiment feels quite exuberant,” he added.
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