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Share prices could fall 10% by the end of the year, Stifel’s Barry Bannister says.
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The bank’s head of equity strategy pointed to the slowing labor market and the potential for persistent inflation.
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He added that interest rates are unlikely to fall below 3% without an economic slowdown.
According to Stifel’s Barry Bannister, the stock market could be heading for a year-end correction.
The investment bank’s chief equity strategist said investors should be cautious in the fourth quarter. That’s because the labor market is slowing and inflation could remain higher than markets expect — two headwinds that could lead to as much as a 10% decline in the S&P 500, he predicted in a recent report. interview with CNBC.
“When you put it all together, it’s a slowing economy, especially in terms of employment. There are a lot of options and the market is expensive. So we certainly want to urge caution as we go into the third and fourth quarters.” Bannister said.
The slowing labor market has already caught the attention of investors, who are watching for signs of continued economic weakness. According to the Conference Board’s latest Consumer Confidence Survey, 18% of U.S. consumers said it was difficult to find a job in September, compared to just 17% of consumers a month earlier.
US companies announced more than 75,000 job cuts in August, a 193% increase from the previous month, according to a report from Challenger, Gray & Christmas.
Inflationary pressures could also linger in the economy, complicating the market’s view on sharp rate cuts, Bannister suggested. Investors largely expect interest rates to fall to 3% or lower by the middle of next year CME FedWatch tool. But he says that’s unlikely to happen without the economy experiencing a slowdown, which is also bearish for stocks.
“It’s very hard to justify getting below 3% without a slowdown,” Bannister said of interest rates. “If we don’t have a slowdown in growth, if we continue to leverage the limited resources that we have, then you would end up with a ‘no landing’ scenario, where rates and yields should not be dramatically lower.”
Investors are also looking a little too optimistic, with shares hovering near their all-time highs, Bannister said. According to the latest report from the AAII, almost half of all investors say they are optimistic about stocks in the next six months. Investor sentiment research.
‘I have no problem with the Fed taking a more dovish stance in 2024. It’s what people expect in 2025 that was already starting to be priced in, and the 31% year-over-year gain in the S&P 500. Everything just made sense. feels very foamy,” he added.
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