Don’t rush back into the stock market as more pain is coming if the economy keeps slowing, Stifel chief strategist says

• Barry Bannister of Stifel said stocks have risen since last week’s sell-off, but there is still reason for caution.

• The Fed’s 2% inflation target is “just a pipe dream” while the housing market is expected to recover, Bannister said.

• He reiterated his prediction of a 10% market correction to push the S&P 500 to 5,000 points by October.

It may be tempting to jump back into the stock market as stock markets rebound from last week’s big rout, but investors should proceed with caution.

“If the economy continues to slow and eventually enters a recession, a bear market is imminent as inflation remains flat,” Barry Bannister, chief strategist at Stifel, said in a report. Tuesday’s interview on CNBC.

“It’s funny,” Bannister said. “There’s Goldilocks and the Three Bears, and I think the market not only believes in Goldilocks, but also believes that the Three Bears are an extinct species.”

Bannister has been cautious on stocks this summer and has previously called for a sharp pullback from sky-high valuations. He has backed up his predictions of a sharp drop in stock prices this summer. 10% Market Correction Will Push S&P 500 to 5,000 by OctoberNoting that stocks at this level will remain somewhat expensive.

He pointed to inflation primarily as the catalyst for further declines, as it was “a little more resilient than people expected.”

While the Fed is targeting a personal spending rate of 2.8%, Bannister expects the central bank to target closer to 3% by the fourth quarter due to persistent housing price inflation.

While markets see a September rate cut as a given, Bannister said there would almost certainly be a huge rebound in housing inflation by 2025, which would put further pressure on prices.

These factors mean that the US Federal Reserve’s goal of a 2% inflation rate is “just a pipe dream,” he added.

“The floor now looks like the ceiling that inflation was in the 20 years before Covid,” he said. “This is a starting point for a move higher later with a stronger economy in the mid-20s.”

Weak data on GDP, consumption, fixed asset investment and net exports expected in the second half of the year do not bode well for the economy, Bannister added.

“Brokers love bull markets, they sell stocks,” he said, but “the market is inherently volatile, it swings from one extreme to the other.”

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