Just ask Barry Bannister. The Stifel chief equity strategist reiterated his call for a market correction this year on Monday morning, saying that the S&P 500 will fall more than 10% to 5000 by October. Bannister’s rationale? He still expects sticky core inflation in the latter half of this year as well as slower-than-expected economic growth. In other words, it’s a “moderate stagflation” environment that would be bad news for stocks.
Bannister says the growth stocks that have led the market higher—think tech and the Magnificent Seven—are “over-extended” and he doesn’t predict a smooth transition in market leadership to value stocks. That said, Bannister continues to like so-called defensive value stocks in the healthcare, consumer staples, and utility sectors.
Corrections, a 10% pullback from recent highs, are common in bull markets. The S&P 500 last experienced one in October 2023 as investors worried that earnings from top tech firms weren’t living up to the considerable hype.
Advertisement – Scroll to Continue
But most market strategists remain unabashedly bullish, due to increased hopes for multiple interest rate cuts by the Federal Reserve later this year and expectations for strong earnings in the second half of 2024 and throughout 2025. The market is pricing in a soft landing as opposed to an imminent recession.
Bannister is now even more of a lonely bear following the recent news that Marko Kolanovic, the chief market strategist at JPMorgan Chase, was planning to leave the firm. Kolanovic had a price target of just 4200 for the S&P 500.
Mike Wilson of Morgan Stanley is still a bit skeptical about the market, although not as much as he was a few months ago. Wilson boosted his S&P 500 target to 5400 in May from 4500. That’s still below today’s level, with the index trading above 5600.
Advertisement – Scroll to Continue
And then there’s perma-bear David Rosenberg of Rosenberg Research. He said in a report Monday morning that “the recession nobody believes will ever occur is actually only now just starting” and that “the fundamentals do not support a broader and sustained rotation into ‘value’ stocks.”
Rosenberg added that bulls are being “a little disingenuous” in describing the current rally as being driven by earnings.
“If this was all about earnings growth, the S&P 500 would be sitting at 4,800, not 5,600+. It’s mostly about FOMO sentiment, momentum, extraordinary popular delusions, and the madness of crowds,” Rosenberg concluded.
Advertisement – Scroll to Continue
While Bannister isn’t the only cynic out there, the bears club is a pretty small one.
Write to Paul R. La Monica at paul.lamonica@barrons.com
