Wall Street's biggest bear coming into 2025 says stocks have bottomed out for now. He shares the 3 parts of the market he's banking on for gains.
REUTERS/Brendan McDermid
- Barry Bannister predicts a zigzagging S&P 500 resembling a W pattern this year.
- He expects a bounce to 5,800 but warns of another dip due to inflation concerns.
- Bannister favors value, international, and small-cap stocks.
Here's what Barry Bannister says the S&P 500's price chart will look like this year: W.
"It's going to be a zigzagging market this year," the Stifel chief strategist, who has the lowest 2025 S&P 500 price target on Wall Street, told BI on Friday. "If I had to put a letter on it, I would say it would look a little bit like a W."
Right now, stocks are coming off one of the W's troughs, Bannister thinks. With the index falling into correction territory last week, the market is due for a bounce toward around 5,800 as fears of a recession cool off, he said. It started to head in that direction during trading sessions on Friday and Monday, but stocks sank again on Tuesday. As of Tuesday morning, the S&P 500 sits around 5,600.
But even if the rally picks up again, around 5,800 may be where the rebound stops, according to Bannister.
"Most definitely it will fail the old high" of 6,144, he said.
After a recovery, Bannister expects the S&P 500 to fall again back toward 5,500. That's because he sees a resurgence in inflation in the second half of 2025, hurting spending.
"What we are concerned about later in the year is sort of a double-dip slowdown where inflation proves sticky, particularly in the second half," he said.
"After it pops up and wages are slow, you get some squeeze on real wages," he continued. "That always causes a pullback in consumption."
As both near- and long-term plays, Bannister said he is leaning into three trades in particular.
"I have a 3-2-1 mix," he said. "Three parts value, two parts international, one part in small-cap."
Bannister said this fits into his broader view that US growth stocks — primarily the Magnificient Seven stocks that have led the market over the last 15 years or so — are shifting out of their position as drivers of the market. The outperformance of growth stocks versus value stocks over the last decade has climbed to a point historically associated with reversals in this relationship.
Stifel
"The S&P 500 P/E ratio and the ratio of large cap Growth relative to Value have both topped, and for 80 years since World War II that has been a harbinger of the stock market reaching the peak of exuberant speculation," Bannister said in a follow-up email.
International stocks, particularly in Europe, are attractive as governments ramp up fiscal spending, he said. Small caps should benefit from slightly higher inflation.
Examples of funds offering exposure to these trades include the iShares S&P 500 Value ETF (IVE), the Vanguard Total International Stock ETF (VXUS), and the Dimensional US Small Cap ETF (DFAS).