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Shares are up since final week’s sell-off however there’s nonetheless motive to be cautious, Stifel’s Barry Bannister mentioned.
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Bannister mentioned the Fed’s 2% inflation objective is “only a pipe dream” with housing anticipated to rebound.
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He reiterated his expectation for a ten% market correction to push the S&P 500 to five,000 by October.
It is perhaps tempting to pile again into the inventory market as equities stage a comeback after final week’s massive rout, however buyers ought to tread calmly.
If the financial system retains slowing and finally enters a recession, a bear market is imminent as inflation stays sticky, Stifel’s chief strategist Barry Bannister mentioned in a Tuesday interview on CNBC.
“It is humorous, there’s Goldilocks and the three bears, and I feel the market not solely believes in Goldilocks, however it thinks the three bears are extinct species,” Bannister mentioned.
Bannister has been cautious on shares this summer time and has beforehand referred to as for a pointy pullback from sky-high valuations. He backed up his prediction of a 10% market correction to push the S&P 500 to five,000 by October, noting that shares at that stage would nonetheless be pretty costly.
He pointed primarily to inflation because the catalyst for additional declines, because it has been “a bit stickier than individuals count on.”
Whereas the Federal Reserve targets a PCE of two.8%, Bannister expects the central financial institution to focus on nearer to three% by the fourth quarter because of persistent housing inflation.
With markets seeing a September charge lower as all however assured, Bannister mentioned there’ll certainly be an enormous rebound in housing inflation by 2025, which might trigger extra pricing strain.
These components imply the Fed’s objective for two% inflation is “only a pipe dream,” he mentioned.
“The ground now seems to be like what was the ceiling within the 20 years pre-Covid for inflation. And that is a launching level for a better transfer later with a stronger financial system within the mid-twenties,” he mentioned.
Weak GDP, consumption, mounted asset funding and internet export information anticipated within the second half of the yr additionally do not bode nicely for the financial system, Bannister added.
“Brokers love bull markets, it sells inventory,” he mentioned. However “the market’s naturally manic depressive,” and it “swings from one excessive to the opposite,” he added.
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