The S&P 500 could see a 10% decline, said Barry Bannister of Stifel.
This is because the benchmark index appears overvalued, according to several indicators.
The economic outlook also appears precarious, given stubborn inflation and slowing growth.
The stock market appears poised for a correction, and an uncertain economic and monetary environment could send stocks down 10%, according to Barry Bannister, Stifel’s chief equity strategist.
Bannister – who played a number of pessimistic warnings The Fed boss, who announced Tuesday that he had been in the market this year, reiterated his bearish outlook for stocks, given the scale of the recovery. He warned that sky-high valuations are about to collide with a weakening economic situation, which could lead to losses for investors as early as this summer, he said in a statement. interview with Yahoo Finance on Tuesday.
“We are concerned that future returns will be lowered by today’s high level. There is no better way to achieve a low long-term return than to overpay today,” he said. -he warned.
The S&P 500 appears to be overvalued by about 10%, Bannister estimated, citing calculations using market values. equity risk premium. Other valuation measures, like household stock ownership as a percentage of total assets, are also at record levels, he said.
The economy, meanwhile, is poised for higher-than-expected inflation and weaker-than-expected growth in the second half of the year, he predicted. Economic growth has slowed, with GDP increases by 1.4% in the first quarter, according to the latest revision. Meanwhile, inflation has remained stubbornly high for two years, with inflation stands at 3.3% in May, still well above the Fed’s long-term 2% price target.
Slowing growth and high prices are a precarious combination. The economic context reflects that stagflation crisis During the 1970s, some forecasters warned, a period marked by skyrocketing inflation, sluggish economic growth and poor stock market performance.
Persistent inflation also weighs on Fed Rate Cut Prospectswhich is further bad news for stocks. The Fed now manages a increased risk of not being able to lower rates at all this year, even if the market is looking two cuts.
“As a result, the market can pull back, and that’s what we’ve forecasted… I wouldn’t be disappointed if it were to drop 10% to around 4,900,” Bannister warned. “If you’re thinking about getting more bullish, maybe think about doing that in the fourth quarter, but I would be cautious, and I’d have some hedges here for the summer and early fall.”
Other investment veterans have warned stocks expected to fall amid high valuationsTo the extreme, permabear forecasters as John Hussman have sounded the alarm about a serious stock market crash, with stocks falling as much as 70% as valuations correct.
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