Equity strategist who called stock rally in first half says S&P 500 won’t resume climb until spring 2024

“We believe the rally off the Oct. 2022 lows is over, and our view since summer 2023 has been a sideways trading range,” Bannister said in a Monday note. “The updated view is that we now believe our year-end 2023 target of 4,400 applies through Apr. 30, 2024.”

Bannister was one of the few Wall Street strategists who correctly anticipated the U.S. stock-market rally in the first half of 2023. He also said economic risk for equities will rise in late 2023 as stock gains would stall in the second half of the year. He set his 4,400 year-end target for the S&P 500 in May, a roughly 4.3% advance from Monday’s close of 4,217.04, according to FactSet data.

“We traded the relief rally [in early 2023], turned neutral in summer 2023 and discouraged bullishness before the third quarter of 2023,” Bannister said. He said he thinks a new record-high for the S&P 500 by year-end 2023, as some of the most bullish strategists on Wall Street have projected, is “exceptionally unlikely.”

See: S&P 500 has another high 2023 price target. Here’s a look at Wall Street’s official stock-market outlook.

Meanwhile, Bannister thinks the key 10-year U.S. Treasury yield
BX:TMUBMUSD10Y
will peak around 5% in the current cycle, but he projects a “normalized” 10-year yield of 5% or 6% in the mid-2020s, which could put pressure on corporate earnings.

The 10-year Treasury yield flirted with 5% on Monday for the first time since 2007, touching an intraday high of 5.02% in the morning trading before retreating to finish the New York session at 4.836%, according to Dow Jones Market Data. 

“It is not ‘Fed high for longer’ — the Fed has returned to ‘policy modulation at normalized rates,’” Bannister wrote. 

Bannister also pointed to the health of the U.S. labor market as a source of economic resilience and a reason for “the Fed rate normalization,” which could tighten financial conditions and weigh on price-to-earnings ratios for stocks. 

The price-to-earnings ratio, sometimes known as the price multiple, is a ratio of a stock price divided by a public company’s yearly earnings per share. It is a way to determine stock valuation.

That’s why the strategist sees the S&P 500 will remain flat or “range-bound” for the rest of the 2020s decade as price-to-earnings ratios across U.S. firms will be halved due to tightening financial conditions, but it could offset growth in earnings-per-share (EPS). Bannister forecasts the S&P 500 EPS will at least double from $156 in 2019 to a range of $300-325 in 2030. 

EPS is a company’s net profit divided by the number of common shares it has outstanding, and it usually indicates how much money a company makes for each share of its stock.

U.S. stocks finished mostly lower on Monday, with the Dow Jones Industrial Average
DJIA
down 190 points, or 0.6%, to end at 32,936, but the Nasdaq Composite
COMP
edged up 0.3%, according to FactSet data.