Stifel: The Surprise of 2024 will be Sticky Core Inflation
Stifel's Barry Bannister CFA predicts zero real annual returns from the S&P 500 from now to early 2030s. He gives good reasons why.
I like to see different points of view.
This is to avoid groupthink — something to avoid in unpredictable markets.
I’ve already shared a bit of what JPM and GS expect in 2024.
The most contrarian and “no holds barred” 2024 Outlook I’ve read this year is from Stifel’s Barry Bannister, an equity strategist who predicts zero real returns for the next 10 years.
It is credible enough to warrant a closer look.
Just to clarify, Bannister is not a permabear. He has, as a bonus, been relatively correct on the market’s ups and downs over the past 2 years.
The idea of zero real returns for a decade is also not new.
It’s actually happened twice in recent history — from 1965 to 1981 (the Stagflationary 70s) and the 2000 to 2008 (from the Dotcom Bust to the GFC).
In fact, some might even say that the Fed Pivot from hawkish to Dove — before inflation is at 2% — even increases the risk of a decade with low real returns.
Why?
Because it means that inflation now has a higher probability of making a comeback — in late 2024 or 2025.
1H2024: S&P to top out
In the short term, Bannister believes in better growth, but sticky core inflation.
This causes a decline in growth stocks like tech, but a rotation into banks, energy and real estate.
Net net, this means the S&P stays stagnant.
Now, why does Stifel think core inflation will stay sticky?
This is due to sticky supercore inflation (in dark blue below) — where he expects financial services, healthcare and insurance costs to increase, while accommodation, food costs and recreation stay sticky.
From Feb 2024, he also expects the unemployment rate to start dropping further - putting upward pressure on wages.
The Decade Ahead: Current to Early 2030s — Low to Zero Real Return in Stocks
Now, this is the concerning part of his outlook.
From the peak of 4,800 in Dec 2021, Bannister says that US stocks are still in a secular bear market. He expects the S&P 500 to return zero in real, inflation-adjusted terms until 2031.
He favours value, small cap and international equities.
The blue line in the chart below shows annualised returns for the S&P 500 going back 80 years. Because it is mean-reverting, this suggests that returns for the next 10 years will be low or zero after inflation.
And for goldbugs, rejoice. He predicts a commodity supercycle this decade, based on high US fiscal deficit and US dollar debasement.
Now, all this seems fairly out-of-the-box.
You may ask: What about AI and the coming tech productivity boom? What about Fed cutting rates?
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