Stifel analysts have painted a cautious picture for the S&P 500 index, foreseeing a significant correction of around 10% to approximately 4,750 by the conclusion of the third quarter in 2024. This projection is underpinned by a combination of factors, chief among them being the persistent specter of high inflation and the Federal Reserve’s constrained ability to implement accommodative monetary policies.
Despite the remarkable performance of the S&P 500 over the past two and a half years, Stifel strategists have identified a disconcerting dissonance between the index’s actual trajectory and prevailing investor sentiment. They highlight the fact that when adjusted for inflation, the S&P 500 has failed to generate real gains since December 2021. This observation hints at a potential shift from a Secular Bull Market to a Secular Bear Market, a transition that could pose considerable challenges for investors, particularly those who adhere to long-term buy-and-hold strategies.
The anticipated correction is driven by several factors, with sticky inflation being a primary concern. Stifel analysts anticipate that inflationary pressures will persist, with a slight uptick expected in the latter half of 2024. These persistent inflationary forces curtail the Federal Reserve’s ability to enact interest rate cuts, even in the face of lackluster economic growth.
In line with their outlook, Stifel strategists project a decline in the S&P 500’s price-to-earnings (P/E) ratio by approximately two multiples. This adjustment is forecasted to translate into a sizable 500-point drop in the index by the third quarter of 2024.
Given the looming market correction, Stifel favors Defensive Value equities within select sectors. These include Healthcare, Consumer Staples, Utilities, and Quality sectors, which are expected to exhibit greater resilience and stability during the anticipated downturn. This strategic positioning is designed to navigate the challenging market conditions expected through the end of the third quarter of 2024.