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The stock could see a 10% drop by the end of the year, says Stifel's Barry Bannister.
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The bank's head of equity strategy pointed to the slowdown in the labor market and the potential for sticky inflation.
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He added that interest rates probably won't fall below 3% without an economic slowdown.
The stock market could be headed for a year-end correction, according to Stifel's Barry Bannister.
The investment bank's chief stock strategist said investors should exercise caution heading into the fourth quarter. That's because the labor market is slowing and inflation could remain lower than markets expect — two headwinds that could send the S&P 500 down as much as 10%, he predicted in a recent report. interview with CNBC.
“When you add all this up, it's a slowing economy, particularly on the employment side – there are a lot of options available and the market is expensive. So we certainly urge caution at the end of the third and fourth quarters.” Banister said.
He labor market slowdown It has already caught the attention of investors, who are watching for signs of continued economic weakness. 18% of American consumers said it was difficult to get a job in September, up from just 17% of registered consumers the previous month, according to the Conference Board's latest Consumer Confidence Survey.
Meanwhile, American companies announced more than 75,000 job cuts in August, a 193% increase from the previous month, according to a report. report from Challenger, Gray and Christmas.
Inflationary pressures could also persist in the economy, which could complicate the market's view of sharp rate cuts, Bannister suggested. Investors largely expect interest rates to fall to 3% or lower by the middle of next year, according to the 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 difficult to justify going below 3% without a slowdown,” Bannister said of interest rates. “If we don't have a slowdown, if we continue to use these limited resources that we have, what would end up being a no-landing scenario, where rates and yields shouldn't be dramatically lower.”
Investors also seem overly optimistic as stocks near all-time highs, Bannister said. Nearly half of all investors said they were optimistic about stocks over the next six months, according to AAII's latest report. Investor Sentiment Survey.
“I have no problem with the view that the Fed will be more dovish in 2024. It's what people expect in 2025 that started to factor in, and the 31% year-over-year gain in the S&P 500. It all just comes together.” feels very foamy,” he added.
Read the original article at Insider business information