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The stock market is heading for a 10% decline in the coming quarter, Stifel analysts warned.
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That’s because “moderate stagflation” will throw Fed rate cuts off the table, the company said.
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Prices have remained stubbornly high while economic growth is slowing.
According to Stifel strategists, the stock market is heading for a sell-off in the coming months, with the S&P 500 falling 10%.
The investment bank warned of weakness in stocks due to a mixed bag of economic conditions that make it unlikely the Federal Reserve will cut interest rates as investors hope.
Markets are pricing in a 57% chance that the Fed could cut rates by at least 50 basis points this year, according to CME’s FedWatch tool, but central bankers are unlikely to ease monetary policy at all in 2024, according to the report. Stifel predicted, as the economy watches. there is a ‘moderate case of stagflation’.
That’s a tough scenario for the stock market, with sluggish economic growth and persistent inflation leading to tepid returns for investors. GDP has already cooled compared to last year, while the economy grew only 1.3% in the first quarter. Meanwhile, inflation came in higher than expected for the first three months of the year.
High prices limit the Fed’s ability to cut rates in 2024, the bank said, adding that it sees no cuts at all this year.
“The no-landing scenario (albeit with soft growth) and increased resource use with inflation more persistent than expected constrain the Fed (a mild form of stagflation),” the note said.
Stocks also don’t look like they are in a bull market by historical standards. Adjusted for inflation, the overall S&P 500 remains below where it was at the end of 2021 — something that could be “emblematic of underlying problems” in the market, Stifel said.
“We continue to forecast that the S&P 500 will correct approximately -10% to ~4,750 from the recent peak before the end of Q3 2024,” strategists said in a note on Tuesday. “To be a ‘secular bull market,’ it has been a requirement for more than a hundred years that the S&P 500 continue to perform. higher highs adjusted for inflation. Historically, when the inflation-adjusted S&P 500 exits the secular bull market, it enters a ‘secular bear market,’ which is a much more treacherous period for investors.”
Other market commentators have warned of a tough road ahead for the stocks, despite the S&P 500’s record highs this year. By some measures, stocks appear deeply overvalued, say some investment veterans, who warn of a steep correction on the horizon.
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