Why This Wall Street Bear Says It’s Too Soon to Reinvest

U.S. stocks rebounded on Tuesday after a global market selloff triggered by fears of a weakening U.S. economy led to Wall Street worst day since 2022.

However, Barry Bannister, chief equity strategist at Stifel, believes it is still too early to re-enter the U.S. stock market. He maintains his prediction that the S&P 500 (SPX) will drop to 5,000 by October, a decline of 12% from its July peak, due to a significantly slowing U.S. economy and persistent inflation.

“Our outlook remains a correction to 5,000 on the S&P 500 by October,” stated Bannister and his team in a Monday note. “While we foresee a low-double-digit correction, there is also a risk of a bear market if the slowdown turns into a recession, which would be unexpected for investors and the Federal Reserve.”

A market correction occurs when a stock index falls at least 10% from a recent high, potentially worsening into a bear market with a drop of 20% or more.

The S&P 500 last entered correction territory on Oct. 27, 2023, and the recent selloff has brought it close to another correction, currently down 7.5% from its high of 5,667 set on July 16, according to Dow Jones Market Data.

Earlier this year, Bannister forecasted a summer selloff and repeatedly predicted a market correction by October. This stance makes him one of Wall Street few remaining bears, as many other strategists have raised their year-end targets for the S&P 500, expecting multiple interest-rate cuts by the Fed.

Bannister and his team advise investors to remain defensive, favoring “defensive-value” sectors such as healthcare, consumer staples, and utilities, which they believe will outperform if inflation remains high and U.S. GDP growth slows sharply. These sectors typically provide a hedge against a potential recession.

On Tuesday, the S&P 500 and Nasdaq Composite (COMP) each rebounded over 1%, while the Dow Jones Industrial Average (DJIA) advanced 0.8%, according to FactSet data.