On October 17th, Beijing time, due to the improvement in the U.S. economic outlook, the Federal Reserve's interest rate cut, and the AI boom, U.S. stocks have hit record highs this year. However, a Wall Street strategist warns that after the strength in 2024, the s&p 500 index may experience a significant decline next year.

On Wednesday, despite the underperformance of tech giants, the strong earnings of small cap stocks and financial stocks drove the overall market higher, with all three major U.S. indices closing up. At the close, the s&p 500 index rose by 27.21 points, an increase of 0.47%, to 5842.47 points. On Monday, the benchmark index hit its 46th historical high of the year, accumulating a 23% increase since the beginning of this year.

Barry Bannister, Chief Equity Strategist at the well-known U.S. investment bank Stifel, said in a media interview on Wednesday, 'It's difficult for the market to sustain these gains.'

Reason One: AI is not a new technology.

Bannister pointed out that one of the key drivers behind the current stock market rally is AI, which is not a new technology. His view seems to contradict the mainstream market perspective.

'In about the past 80 years, all major bull markets have been accompanied by the emergence of new technologies. In the 1950s, nuclear energy was a big deal. In the 60s and 70s, computers and semiconductors appeared, they were a big deal,' he said.

'Then back to the 90s, it was the internet and fiber optics, now it's generative AI, and by the way, this is not truly revolutionary. It's more about using the data we already have from the internet. So, I consider it a top-level progress rather than a new technology.'

Reason two: inflation may rise again.

Bannister also stated that due to the massive government spending in the USA and the possible resurgence of inflation pressure, the macroeconomic background is one of the reasons he predicts the s&p 500 index will decline next year.

"We are now in a highly politicized environment in the USA. Populism has emerged and will continue to exist. This election struggle is actually about which kind of populism, right-wing or left-wing populism will prevail. But there is no doubt that populism has won. Therefore, we will see the government embark on substantial spending in the future," he said.

Bannister predicts that inflation may rise to a certain extent between 2025 and 2026. The Federal Reserve will have to respond again, which will only lead to unnecessary market fluctuations.

Rise first, then fall.

However, Bannister also indicated that based on the past market patterns during prosperity phases, the s&p 500 index may rise by another 10% this year, to around 6400 points.

Subsequently, with inflation rising in 2025, the index may drop significantly by 25% to 4750 points, returning to the level at the beginning of 2024.

Although some other Wall Street analysts also believe that US stocks are overvalued, considering the continued rate cuts by the Federal Reserve, they generally hold an optimistic view on the prospects of the US stocks. International major banks including Goldman Sachs, UBS Group, and Deutsche Bank have recently raised their year-end target price for the s&p 500 index.