Stifel Financial's Barry Bannister thinks the S & P 500 will see a steep pullback over the next couple of months. The firm's chief equity strategist said the current global market sell-off "feels like an interest cycle slowdown and a double-digit correction at this point." Bannister said that Stifel's year-end target of 5,000 for the S & P 500 "seems appropriate right now" given the July jobs data and delayed Federal Reserve interest rate cuts.
The target indicates a 10% pullback by October and 12% drop from the broad-market index's July high. In early June, Bannister had said the S & P 500 could drop to approximately 4,750 before the end of the third quarter of this year. The S & P 500 ended last week at 5,346.
56. .SPX YTD mountain S & P 500 this year.
Behind Bannister's bearish sentiment are the 'bull steepener' of short-term rates falling faster than long-term rates, widening credit spreads, which he said give no room for financial conditions to ease, the unwinding of the yen 'carry trade' that could lead to a repatriation of billions of Japan's international investments, and geopolitical tensions in the Middle East. As megacap tech and other high-flying growth stocks sink deeper into the red, the strategist reiterated that Stifel continues to favor "defensive value" sectors, such as utilities, health care and consumer staples. "The feeling was that the cyclicals would sell off, and we've had a very rapid rotation from cyclical to defensive," Bannister told CNBC on Monday.
"We also expect sticky inflation, along with that economic slowdown — that's been our call all along into the second half of 2024. That's where we would be all the way through October, for sure." The strategist added that if central bankers make a 50-basis-point cut at their upcoming September meeting, it "would be a huge mistake" that would be a bad signal for the market.
Traders are currently pricing in a 25 basis point cut as their base case scenario. A basis point equals 0.01 percentage point.
.
