Barry Bannister remains unconvinced by the recent surge in the stock market to record highs. The broad market index has reached unprecedented levels at the start of the fourth quarter, coinciding with the Federal Reserve initiating its cycle of rate cuts. Over the past month, the S&P 500 has risen by 3.2%, surpassing 5,800 for the first time and closing at 5,815.26 on Tuesday, despite a slight decline. However, Stifel Financial’s chief equity strategist maintains a bearish outlook. In a note to clients, he expressed skepticism about the market’s performance, stating, “Despite all the soft-landing and Fed rate cut optimism, the S&P 500 up almost 40% year-over-year has simply over-shot.” He explained that although one could highlight the best scenarios and apply the most over-valued cyclically adjusted valuation level of the past 35 years to suggest an additional 10% increase to 6,400, historical analysis of market manias also indicates a potential return of the S&P 500 to its early 2024 levels by 2025, reflecting a 26% decrease from the prospective peak.
Bannister further noted that the over-valuation of the S&P 500 has been underpinned by expectations of the Federal Reserve likely cutting the real funds rate. He cautioned that there is a downside to “so much winning,” as it could threaten the 2% inflation target.
Bannister has a track record of accurately forecasting market trends, having predicted the near-bottom of stock prices during the Covid-19 pandemic in March 2020 and forecasting a sharp correction in early 2018 due to rising Treasury yields. However, not all his predictions have been accurate. This summer, he anticipated the S&P 500 would drop to 5,000 by the fourth quarter, while instead, it has continued to reach new heights. Although not included in CNBC Pro’s Market Strategist Survey, this forecast would position Stifel as the second-lowest projection among those surveyed, with only JPMorgan’s Dubravko Lakos-Bujas having a lower year-end target at 4,200.
In other developments on Wall Street, Citi has upgraded Cisco Systems to a “buy” rating from “neutral.” Citi indicated that while AI currently accounts for a small portion of the business (approximately 2% of revenue), they anticipate a stronger contribution in the future. The firm expressed increased optimism about the group and expects continued investor rotation away from semiconductors and hardware into networking equipment to benefit overall group valuation.
