One chief equity strategist says that the S&P 500 Index could face a significant decline next year following its 2024 gains.
The S&P 500 Index was trading slightly higher early afternoon Wednesday, after reaching a new all-time high for the forty-sixth time this year on Monday.
Barry Bannister, the chief equity strategist at Stifel, said in an interview with BNN Bloomberg Wednesday that it is “very difficult for the market to sustain these gains.”
“All the major bull markets in the last 80 years or so have occurred with brand new technologies. In the 50s, nuclear was a big deal. And in the 60s (and) 70s, computers and semiconductors just came on the scene, and they were a big deal,” he said.
“Then you go back to the 90s, it was the internet and fibre optics, and now it’s generative AI, which by the way is not really revolutionary. It’s more using the data we already have from the internet. So, I would call it an advance on top rather than a new technology.”
Bannister also said the macroeconomic backdrop contributes to his view that the S&P 500 could decline after this year, based on government spending and a return of inflationary pressures. He said that when it comes to inflation, “the first shot across the bow is rarely the last.”
“We are now… in a highly political environment in the United States. Populism is here and it’s here to stay. The battle in this election is really over what brand of populism, right or left-wing populism, will prevail,” he said.
“But there’s absolutely no doubt and no question that populism has won. And so, we will see large government spending going forward, lots of juice in the economy on nominal GDP (gross domestic product). It will outpace interest rates.”
As a result, Bannister said inflation could tick higher part way through the decade between 2025 and 2026.
“The Fed (U.S. Federal Reserve) then having to play catch up will just cause this unnecessary volatility… we could go up and then back down very quickly over the next year,” he said.
Based on previous market booms, Bannister said the S&P 500 could climb as high as another 10 per cent to around 6,400.
“But then, as inflation picks up in 2025, assuming full resource utilization, we never had the corrective behaviour in the economy, the recession that was necessary…we will probably go back down 25 per cent. And that would take us to 4,750, which is where 2024 began on the S&P 500,” he said.
Bannister added that the Fed is encouraging the current market by “talking up rate cuts” and should reconsider “encouraging wildly speculative behaviour.”