Well, when it comes to this move lower we are
seeing in the markets or next guests isn't surprised.
Back in May, he started calling for a 10%
pull back in the S&P by October reiterated that call
just three weeks ago.
Joining us now Stifel chief equity strategist,
Barry Bannister. Barry, great to have you with us.
Are are we done? Are we almost done with this?
Well, if you think back to
2011 12 or
2015 to 16, there were a couple of double digit
pull backs.
These are the pull backs that mark a mid cycle
slow down
and they also call out the Fed to do more
easing.
So our target of 5000 was a 12%
drop from the July high and that seems appropriate right
now because we're getting mixed jobs data which are subject
to an abrupt turn and the Fed has really delayed
the rate cuts. The average time from
last hike to 1st cut is seven months and they're
fourteen months in September.
So it feels like a intra cycle slow down and
a double digit correction at this point.
We'll wait till we get to 5000 before going further.
So for the next 170 or so
S&P 500 points, would you recommend investors actually reallocate their
portfolios because it seems like you favor the more defensive
areas?
Yeah, Charlotte, along with my colleague Thomas Carroll and Miles
Mutico,
we have recommended what's called defensive value.
These are utilities, health care,
consumer staples, quality and the like.
The feeling was that the cyclicals would sell off and
we've had a very rapid rotation from cyclical to defensive.
We also expect sticky, it's late cycle,
sticky inflation along with that economic slowdown that's been our
call all along into the second-half of
2024. So yeah, that's where we would be all the
way through October for sure.
The baseline is that there's a 25 basis point cut
in September.
Barry. If the Fed deviates from that in any way,
whether it be an intermediate cut or A50 basis point
cut in September,
does your forecast change at all?
50 basis points is not expected.
Plus it would be a very bad signal.
I think Chairman Powell doesn't want the market to believe
that there's an outright Fed put.
You know, I was thinking over the weekend when we
had the soft Thursday,
Friday, that it reminded me of
1987 before the crash on Monday,
October 19th. Back then it was the Deutsche mark.
Now it's the Japanese yen,
but the circumstances were similar.
Greenspan responded by cutting rates and ever since then the
market believes they have a safety net with the Fed.
To have 50 basis points would be a huge mistake.
But they probably will watch the data and by by
the September meeting,
if not maybe before depending on financial conditions,
do a quarter point when you hit that magic 5000
mark on the SP 500,
Barry, then what? What do you tell investors to do
back up the truck on tack?
I mean, do you do you go back to the
things that supercharged the market originally or do you stay
defensive?
No, the things that are really worrying us like the
twos,
10s bulls steepener where the short end is going down
while the long end is not responding.
The credit spreads that have been widening which give no
room for financial conditions to ease.
They would tighten from here and lower the PE,
The unwind of this yen carry trade,
which could lead to repatriation of the 6000 billion dollars
that Japan has invested overseas
and then the Mideast geopolitics are all things that we'll
be considering as we get closer to 5000.
That is too unknown at this point.
We're going to wait for that target to be hit.