Barry Bannister, the chief equity strategist at Stifel Financial, remains skeptical of the recent surge in the stock market to record levels. As the Federal Reserve initiates its rate-cutting cycle, the broad market index has risen significantly, with the S&P 500 increasing by 3.2% over the past month to surpass 5,800 for the first time. On Tuesday, it closed at 5,815.26, despite a slight decline. Bannister maintains a bearish outlook, noting in a client memo that the “S&P 500 up almost 40% year-over-year has simply over-shot.” He acknowledged that while selectively using the most over-valued cyclically adjusted valuation level of the past 35 years could suggest an additional 10% upside to 6,400, a broader analysis of market history indicates a potential return to 2024 levels by 2025, representing a 26% decrease from a possible future peak. Bannister argues that the overvaluation of the S&P 500 reflects the market’s anticipation of the Federal Reserve’s real funds rate cuts but warns that such cuts could undermine the 2% inflation target.
Bannister has a track record of accurately forecasting market trends. In March 2020, he correctly identified the stock market’s lows during the COVID-19 pandemic. In early 2018, he predicted a sharp correction due to rising Treasury yields. However, not all his predictions have been accurate; he predicted the S&P 500 would fall to 5,000 by the fourth quarter this year, which has not materialized, as the index has reached new highs. This forecast, while absent from CNBC Pro’s Market Strategist Survey, positions Stifel’s projections as the second lowest among those surveyed. Only Dubravko Lakos-Bujas from JPMorgan predicts a lower year-end target at 4,200.
Additionally, on Wall Street, Citi has upgraded Cisco Systems from neutral to buy. Citi noted that while AI currently accounts for a small portion of Cisco’s business (~2% of revenues), there is potential for significant growth. The firm anticipates an increase in investor interest shifting from semiconductors and hardware to networking equipment, which could enhance group valuation.
