Following a strong start to the year, the momentum of stocks has hit a roadblock. According to a prominent market watcher, it is unlikely that they will regain their momentum before the year’s end.
After a challenging August, the market has entered what is historically considered its most difficult month. While some investors may be hopeful for a rebound, market strategist Barry Bannister of Stifel suggests that stocks are more likely to remain stagnant.
Bannister, known for accurately predicting market movements in 2023, maintains his year-end target for the S&P 500 at 4,400. This projection implies a slight decline of about 4% from its current level.
Although Bannister initially supported the rally’s stability during the first half of the year, he now adopts a more cautious stance. He no longer expects market momentum to drive the S&P 500 above its pre-bear market record high reached in 2022.
“While our research from October 2022 to June 2023 focused on debunking concerns raised by the most pessimistic investors, it is now prudent to evaluate the assumptions made by the overly optimistic outliers,” Bannister stated. “These individuals believe that the S&P 500 will surpass 4,800 by the end of 2023. Our analysis suggests that such overly positive views are unlikely to materialize.”
Uncertain Outlook for the S&P 500
The S&P 500 faces an uphill battle in reclaiming its previous peak and surpassing it, according to Bannister. The favorable conditions needed for such a feat seem to be out of reach. The substantial growth fueled by Covid-era stimulus measures has made it difficult for companies to achieve significant increases in earnings per share. Additionally, the economy’s resilience provides little incentive for the Federal Reserve to deviate from its plan to raise interest rates, despite some investors’ hopes.
Artificial intelligence, often hailed as a game-changer, may not deliver on expectations without encountering some obstacles. Many others share this viewpoint, given how the market has already reacted to the positive tech news of 2023.
Bannister believes it is crucial for investors to recall the start of September 2000 when the dot-com bubble burst. Although the S&P 500 eventually hit its lowest point in October 2002, it took until December 2014 to reclaim the 1,520.77 level in real terms, adjusted for CPI inflation.
While Bannister doesn’t anticipate stocks remaining in the wilderness for that extended period again, other strategists find reasons to be cautiously optimistic. They argue that Wall Street’s persistent bearishness could actually indicate further gains to come. Moreover, the ongoing resilience of consumers could support the most unpopular stocks in 2022, such as consumer discretionary shares.
Nevertheless, with rising interest rates, mixed economic data, and an abundance of positive news already factored into stock prices, it would not be surprising if it takes a bit longer for the rally to regain its momentum. This suggests that rather than ending with a bang, 2023 may conclude with a whimper.
