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Stocks are up since last week’s sell-off but there’s still reason to be cautious, Stifel’s Barry Bannister said.
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Bannister said the Fed’s 2% inflation goal is “just a pipe dream” with housing expected to rebound.
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He reiterated his expectation for a 10% market correction to push the S&P 500 to 5,000 by October.
It could be all too easy to jump back into the stock market as equities recover from the recent downturn, but investors should proceed with caution.
If the economy continues to slow and eventually slides into a recession, a bear market could be on the horizon, warns Stifel’s chief strategist Barry Bannister in a recent interview on CNBC.
Bannister, who has been wary of stocks this summer, has previously predicted a significant pullback from lofty valuations. He stands by his forecast of a 10% market correction that could drive the S&P 500 down to 5,000 by October, noting that even at that level, stocks would still be relatively pricey.
Inflation is cited as the primary driver for potential further declines, as it has proven to be “stickier than anticipated.”
While the Federal Reserve aims for a PCE of 2.8%, Bannister anticipates the central bank targeting closer to 3% by the fourth quarter due to persistent housing inflation.
With expectations of a September rate cut essentially guaranteed, Bannister foresees a significant rebound in housing inflation by 2025, leading to increased pricing pressures.
These factors indicate that the Fed’s 2% inflation target is “merely a pipe dream,” according to Bannister.
“The floor now resembles what was the ceiling in the 20 years prior to Covid for inflation. This serves as a launching point for a higher trajectory in the mid-twenties with a stronger economy,” he explained.
Weakening GDP, consumption, fixed asset investment, and net export data projected for the latter half of the year also paint a bleak picture for the economy, added Bannister.
“Brokers thrive in bull markets as it drives stock sales,” he acknowledged. However, he cautioned that the market is inherently volatile, swinging from one extreme to the other.
For more information, you can read the full article on Business Insider