According to a team led by Barry Bannister, managing director and market strategist for Stifel Equity Research, the market is on the verge of bursting due to “bad monetary and fiscal decisions since COVID-19,” which has pushed it into an unstable zone.
The Bannister team expects that the S&P 500 index will see a correction in the first quarter of next year, with the index plunging to the low 4,000s. This prediction was made public by MarketWatch.
In a statement to MarketWatch, the Stifel team stated that the Fed’s “behind-the-curve” policy may lead to the creation of the third stock market bubble in 100 years by 2023, with the S&P 500 reaching 6,750 and the Nasdaq reaching around 25,000.
“Populism (which the Federal Reserve and the Treasury Department appear to support) leads to poor decisions and much worse outcomes. According to the report, “rate repression may once again cause a bubble to burst (like it usually does), followed by a lost decade.”
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Bannister’s team cites the S&P 500 plummeting by nearly 20% in the third quarter of 1998, just before the dot-com bubble burst in 1999-2000, as well as a 10.7 percent loss in December 1928, just before the October 1929 crisis, as examples of what happened.
The Stifel team suggests that the Federal Reserve initiated a shift toward a more “hawkish” stance in order to avoid serious market disruptions.
Still, the policy may be implemented too late, and if the market continues to be ‘risk-on’ with a falling Equity Risk Premium and the 10-year Treasury Inflation-Protected Security (TIPS) yield remains at -1.0 percent as a result of global central banks, a P/E [price-earnings] convexity bubble in 2022-2023E is possible, according to the note.
If the S&P begins to show indications of weakness, he advises investors to shift their money to more secure sectors such as healthcare, consumer staples, utilities, and telecoms.
