In a swift departure from the optimistic projections of many Wall Street analysts, Stifel’s Chief Equity Strategist Barry Bannister has cast a shadow of doubt over the likelihood of the S&P 500 reaching a record peak by the end of the year. Despite the index’s significant 17.1% surge this year, Bannister remains skeptical of its ability to reach the "uber-bull" forecast of 4,800, deeming such a level "still out of reach."

The U.S. stock market has shown remarkable resilience this year, riding on the back of a robust economy and steady, albeit slower, interest rate hikes by the Federal Reserve. However, Bannister warns that the S&P 500’s return to its previous all-time high would necessitate an unlikely combination of "very favorable" earnings per share and financial conditions. As the market readjusts following the Labor Day weekend, with major U.S. stock benchmarks including the S&P 500 closing lower on Tuesday, Bannister’s forecast of a year-end figure of 4,400 for the S&P 500 seems increasingly plausible.

S&P 500 Unlikely to Hit Record High by 2023, Says Stifel’s Barry Bannister

Despite the robust performance of the S&P 500 index this year, Stifel’s chief equity strategist, Barry Bannister, predicts that the index is unlikely to reach a new high by the end of 2023. Bannister’s forecast contradicts the "uber-bulls" who anticipate a record price of around 4,800 by then. However, Bannister considers this price level to be "still out of reach."

The Current Market Scenario

The U.S. stock market has soared this year, demonstrating resilience in the face of Federal Reserve’s decision to slowly increase interest rates to combat elevated inflation. As of Tuesday, the S&P 500 has risen 17.1% this year, just 6.2% short of its record close of 4,796.56 in early January 2022, according to Dow Jones Market Data. However, Bannister asserts that to regain its previous all-time high, the S&P 500 would require "very favorable" earnings per share and financial conditions, which he deems improbable.

Bannister’s Year-End Prediction

Bannister expects the S&P 500 to conclude the year at 4,400, compared to the median year-end target of 4,350, as per a Bloomberg survey of U.S. sell-side equity strategists. To hit 4,800, the S&P 500 would require a financial conditions index "near generational lows," a scenario Bannister doubts the Federal Reserve desires, given its ongoing attempts to curb inflation that persists above its 2% target.

The Impact of Earnings Per Share and AI

Bannister also casts doubt on Wall Street’s expectations for the S&P 500’s earnings per share (EPS), which he believes are overly optimistic. He anticipates that the "slowdown" in cyclical economic data in 2023, following the Federal Reserve’s rate hikes, will limit "2024 EPS growth for technology." Despite some investors’ hopes for a soft economic landing post the Fed’s rate hikes slowdown in 2023 amid easing inflation, Bannister maintains that "hyperpositive late-2023 views are unlikely to come to pass."

The Equity Risk Premium and Market Outlook

Currently, the S&P 500’s equity risk premium stands at 3%, a figure Bannister describes as indicative of "a return to normality in a fully priced market." He declares the first half S&P 500 relief rally over and predicts that the second half of the year will remain flat.

Takeaways

Bannister’s forecast serves as a reminder of the uncertainty inherent in financial markets. Despite the optimism of some, the combination of the Federal Reserve’s monetary policy, anticipated slowdown in cyclical economic data, and the S&P 500’s financial conditions may prevent the index from reaching new record highs. It underlines the importance of investors maintaining a balanced perspective and not being swayed solely by bullish sentiments. Markets tend to fluctuate, and while the S&P 500’s performance has been impressive this year, it might not be sustainable in the longer term.