Barry Bannister, the chief equity strategist at Stifel Financial, remains skeptical about the stock market’s surge to record highs. The broad market index has reached new peaks at the beginning of the fourth quarter, coinciding with the Federal Reserve’s initiation of its rate-cutting cycle. Over the past month, the S&P 500 has risen by 3.2%, surpassing 5,800 for the first time and closing at 5,815.26 on Tuesday, even after a slight decline. Bannister, however, maintains a bearish perspective, explaining in a note to clients that the S&P 500’s nearly 40% year-over-year increase is an overextension. He acknowledges that, while optimistic scenarios suggest around a 10% further rise to 6,400, historical analyses of market bubbles indicate a potential decline of 26% by 2025, bringing the index back to its starting point in 2024. Bannister asserts that the S&P 500’s overvaluation is supported by the anticipated Fed rate cuts, though warns that this compromises the 2% inflation target.
Bannister’s track record includes accurately predicting market trends, such as identifying the Covid-19 market lows in March 2020 and anticipating a market correction in early 2018 due to rising Treasury yields. However, his recent projection that the S&P 500 would drop to 5,000 by the fourth quarter has not come to fruition, as the index has instead reached unprecedented levels. Although not featured in CNBC Pro’s Market Strategist Survey, this prediction ranks Stifel as the second most conservative among analysts surveyed, with only JPMorgan’s Dubravko Lakos-Bujas having a lower year-end target at 4,200.
In other market developments, Citi has upgraded Cisco Systems from neutral to buy. Citi notes that, although artificial intelligence currently represents a small portion of Cisco’s business (approximately 2% of revenues), there is potential for greater contributions in the future. They anticipate increased investor interest shifting from semiconductors and hardware to networking equipment, which could enhance the group’s valuation.