Investing

One of Wall Street's Top Gurus Predicts 2025 Sell-Off: The S&P 500 Could Plunge to 5500

Lee Jackson

Published: December 13, 2024 7:41 am

If there is one voice on Wall Street that we always listen to at 24/7 Wall St, it is Stifel’s Barry Bannister, and with good reason. We have watched and documented his market calls for years, some of which are among the most incredible and courageous ever made by a sell-side research chief institutional equity strategist and his staff.

24/7 Wall St. Key Points:

• Sticky inflation likely puts the Federal Reserve rate cuts on hold in January.
• The December 25-basis-point rate cut may be the last until the spring.
• Stifel’s Barry Bannister makes a major market call after a massive two-year rally.
• If you feel your portfolio could use a major checkup, a qualified financial advisor is the right person to turn to now. To get started, click here today. (sponsored)

The stock market was crushed in the first quarter of 2020 as the COVID-19 pandemic unfolded. We saw a stunning 34% decline from the high on February 19, 2020, to the low on March 23. At the absolute bottom of the selling, Bannister suggested that clients buy stocks.

That high-velocity sell-off included a startling day on March 16, when the Dow Jones industrials dropped 12.9%, the second biggest one-day drop after the disaster in 1987. The S&P 500 fell 12%, its third most significant percentage drop, and the Nasdaq declined a staggering 12.3%, the most significant loss ever for the tech-heavy index.

By no means is Bannister a Wall Street perma-bear always predicting gloom and doom. He has consistently used market metrics and historical data for some of Wall Street’s most incredible upside calls. Different from some one-and-done equity strategists who made a great call and were never right again, Barry has consistently made solid calls for both upside and downside moves.

This time, after a massive two-year rally that has printed back-to-back 20% plus moves for the S&P 500 for the first time since the mid-to-late 1990s and a stunning 30% jump for the Nasdaq on the back of an artificial intelligence-driven frenzy tech rally, he thinks the equity stop lights are flashing yellow, and with good reason.

Bannister and his team noted this in a recent Stifel research report for Institutional and Retail clients of the firm:

Our 2025 view is that U.S. real GDP will decelerate to about 1.5% in the second half of 2025 (recently >3% growth) with sticky Core PCE inflation just under 3%, contributing to an S&P 500 correction of 10-15% by the second half of the year. U.S. real GDP growth slows in the year’s second half as lower real wages (slowing wages combined with flat inflation) pressure consumption growth, while fixed investment and net exports weaken.

All this occurs at a time when stock valuations and Growth vs. Value are at extremes since every generation has a bubble mentality (inflation-adjusted S&P 500 peaks in 1929, 1968, and 2000), this being ours. We also expect the Fed to pause at the January 29th meeting at 4% (2 more cuts, then done well into 2H25) due to sticky inflation and zero fiscal visibility, with the inflation-leery Fed standing pat too long in the second half of 2025 despite GDP slowing.

That puts the greatest risk around mid-2025 from an economic and policy standpoint. Also, in the span of U.S. history, there have been few great disruptors like the incoming administration, which may have had two years to cement its agenda, adding headline risk to the first six months of 2025. The environment does not appear conducive to continued equity mania, and we prefer more defensive sectors (e.g., Healthcare, Utilities, Staples).

One huge positive for investors is that Bannister and his team feel there is more than enough time for those concerned about the potential for a correction in 2025 to readjust portfolio allocations, take some chips off the table, and reset capital in some of the more defensive sectors they noted.

Next week, we will have a post highlighting the high-yield dividend stocks Stifel likes in those sectors. Plus, the reality is that AI’s potential for technology and real-life applications in the world is legitimate, and the wind it has put into the sails of many technology stocks is not going away anytime soon. Clearly, we may be ready for the pause that refreshes after a huge two-year run, but the future looks very bright.

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