Breaking Down Barry Bannister’s ‘Exceptional’ Market Analysis

Barry Bannister Takes a Contrarian View on Stock Market Optimism.

Barry Bannister, the chief equity strategist at Stifel, is offering a dissenting perspective amidst the prevailing bullish sentiment in the stock market. He believes that the S&P 500 index’s remarkable ascent is unlikely to culminate in a record high by the close of this year.

In a recent communication, Bannister asserted, “It’s exceedingly improbable that we’ll witness a new high by the end of 2023.” While some of his peers, whom he dubs “uber-bulls,” are envisioning the index reaching a historic level of approximately 4,800 by year-end, Bannister contends that such a milestone remains “beyond reach.”

Despite the backdrop of a robust economy and the Federal Reserve’s gradual tightening of interest rates to combat inflation, Bannister maintains that the S&P 500 would necessitate “exceedingly favorable” earnings per share and financial conditions to return to its previous all-time zenith.

Year-to-date, the S&P 500 has already surged by 17.1%, coming within a mere 6.2% of its record closing level from early January 2022, based on Dow Jones Market Data.

On a recent trading day following the Labor Day weekend, key U.S. stock benchmarks concluded with slight declines. The S&P 500 dipped by 0.4%, closing at 4,496.83. In parallel, the Dow Jones Industrial Average experienced a 0.6% reduction, while the technology-heavy Nasdaq Composite shed 0.1%, according to FactSet data.

Bannister’s year-end prognosis for the S&P 500 stands at 4,400, diverging from the median year-end target of 4,350 based on a Bloomberg survey encompassing U.S. sell-side equity strategists.

Bannister contends that for the index to attain the 4,800 threshold, it would necessitate a financial conditions index hovering “close to historical lows,” a scenario he finds improbable given the Federal Reserve’s intentions.

Since the inception of 2022, the Federal Reserve has been progressively adjusting monetary policy to combat persistently elevated inflation, rendering the realization of such exceptionally low financial conditions a remote possibility.

Bannister has identified another challenge in Wall Street’s earnings per share (EPS) projections, which he deems excessively optimistic. He anticipates that the deceleration in cyclical economic data during 2023, following the Federal Reserve’s series of rate hikes, may hinder EPS growth for technology companies in 2024.

In conclusion, Bannister proposes that the stock market’s performance in late 2023 may fall short of the sanguine expectations, notwithstanding the recent prominence of artificial intelligence and the optimism surrounding a gentle economic landing. Additionally, he underscores that the S&P 500’s equity risk premium, presently standing at 3%, signifies a return to a more typical state in a fully valued market.

In his assessment, “The initial rally in the S&P 500 for the first half of the year has concluded,” and he foresees that the “latter half will likely exhibit a flat trajectory.”