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Stock market valuations are near generational highs, says Stifel’s Barry Bannister.
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Bannister predicts the S&P 500 could rise to a low of 6,000 before falling again.
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He said the market is in a “mania,” with valuations near 80-year highs.
The stock market is “entering Crazy Town” as valuations creep toward generational highs, Stifel’s chief equity strategist Barry Bannister said Thursday.
His comments come a day after the stock market soared to record highs following Donald Trump’s election victory, with the Dow Jones rising more than 1,500 points and the Nasdaq gaining nearly 3%.
Bannister said current market valuations price in an incredibly optimistic scenario that could lead to disappointment for investors.
“Even taking into account the best-case scenario of a US soft landing, and despite a possible increase in US budget spending, global cyclical stimulus in China and finally a geopolitical ‘reckoning’, the S&P 500 is a mania, which is almost reaching a climax. The appreciation for three generations is high,” said Bannister.
Bannister added that while he expects the S&P 500 to hit the “low 6,000 mark” in the near term, such a rise would cause valuations to reach an 80-year high, as measured by of the cyclically adjusted CAPE earnings yield of the S&P 500.
“Earnings yield (EPS/price) is near a 3% low for the entire three-generation period after World War II (since 1945),” Bannister said.
According to Bannister, the extreme overvaluation suggests that even if the S&P 500 continues to rise a few percentage points toward the low 6,000s in the short term, it could be ripe for a decline of 1,000 points, or about 13%, within about 13 years. So.
“If the S&P 500 follows a century of manias, it will hit a low of 6,000 in the fourth quarter of 2024 and then hit the fair value of about 5,250” in early 2026, Bannister said.
The S&P 500 was trading at 5,965 on Thursday afternoon.
Ultimately, Bannister believes that current stock market sentiment is approaching the point that typically marks the end of a bull expansion. Quoting the famous British investor Sir John Templeton, he added:
“Bull markets are born from pessimism, grow from skepticism, mature from optimism and die from euphoria.”
Read the original article on Business Insider
