According to Stifel’s esteemed chief equity strategist, Barry Bannister, we may not witness the S&P 500 index reaching a new record peak by the end of this year. In a recent note, Bannister confidently stated that the possibility of a new high by year-end 2023 is extremely unlikely. While some optimistic equity strategists believe that the index could reach a staggering price of approximately 4,800 within that timeframe, Bannister argues that such a level is still out of reach.
Despite the resilience demonstrated by the U.S. stock market this year, even in the face of the Federal Reserve’s gradual interest rate hikes, Bannister contends that hitting its prior all-time high would necessitate “very favorable” earnings per share and financial conditions—which he deems unlikely.
Evidently, the S&P 500 has already experienced an impressive surge of 17.6% within this year alone, coming within a mere 5.9% of its record close of 4,796.56 in early January 2022, as confirmed by Dow Jones Market Data.
Although major U.S. stock benchmarks showcased a predominantly downward trend early afternoon on Tuesday, following the Labor Day weekend, it is crucial to note the fluid nature of these markets. At last check, the S&P 500 SPX recorded a 0.2% decrease, hovering around 4,509, while the Dow Jones Industrial Average DJIA observed a 0.2% decline. On the other hand, the technology-heavy Nasdaq Composite COMP demonstrated a marginal increase of 0.1%, as reported by FactSet data.
While many uncertainties surround the future trajectory of the S&P 500 index, Barry Bannister’s cautious perspective highlights the challenges ahead and encourages vigilance among investors.
S&P 500 Predictions: A Closer Look at Market Expectations
Market analysts have differing opinions when it comes to predicting the future performance of the S&P 500 index. While the median year-end target is set at 4,350 according to a Bloomberg survey of US sell-side equity strategists, Bannister, a respected analyst, expects the index to reach 4,400 by the end of the year.
Bannister believes that for the S&P 500 to soar even higher, it would require a financial conditions index that is “near generational lows.” However, he doubts that the Federal Reserve would be inclined to let it reach such levels. The central bank has been actively tightening monetary policy since early 2022 in an effort to combat persistently high inflation.
Another factor that Bannister takes into consideration is Wall Street’s optimistic outlook for the S&P 500’s earnings per share (EPS). He believes that these expectations may be too high, and he expects a slowdown in EPS growth for the technology sector due to a lag in cyclical economic data following the Fed’s rate hikes. Bannister is skeptical that the hyperpositive late-2023 views will materialize, regardless of the assertions made by AI bot predictions labeled as “New Era.”
The recent surge in popularity of artificial intelligence has played a significant role in driving the impressive rally of the S&P 500. Furthermore, some investors remain hopeful that the economy will experience a smooth transition and land softly after the Fed’s decision to slow down its rate hikes against a backdrop of easing inflation.
Taking a closer look at the equity risk premium of the S&P 500, Bannister notes that it currently stands at 3%, which he considers neither low nor high. To him, this indicates a return to normality in a fully priced market.
In conclusion, Bannister argues that the relief rally of the first half of the year for the S&P 500 has come to an end. He predicts that the second half will be characterized by a flat market, lacking any significant fluctuations.
