Stifel strategist warns that the USA will fall into "moderate stagflation," and it is feared that the Federal Reserve will not consider interest rate cuts within the year.
According to Stifel strategist, in the next few months, the stock market will experience a sell-off, and the S&P 500 index (SPX) will drop by 10%.
The Bank warned that the mixed economic conditions will weaken the US stock market. The former will make it unlikely for the Federal Reserve to cut interest rates as investors hope.
According to the CME's Federal Reserve observation tool, the market expects a 57% chance of the Federal Reserve cutting interest rates by at least 50 basis points this year. However, Stifel predicts that because the US economy appears to be experiencing 'mild stagnation', Federal Reserve officials will not loosen monetary policy in 2024.
This is a difficult situation for the stock market, with slow economic growth and persistent inflation leading to modest investor returns. US GDP growth has been slowing since last year, with first-quarter GDP growth of only 1.3%. At the same time, inflation levels in the first three months of this year were higher than expected.
The Bank said high prices limit the Federal Reserve's ability to cut rates in 2024 and added that it does not expect any rate cuts this year. Strategists note in the report:
'Non-landing', increased resource utilization, and higher-than-expected inflation limit the Federal Reserve's rate cuts, which will result in mild stagnation.'
Stifel noted that by historical standards, the US stock market does not appear to be in a bull market. After adjusting for inflation, the overall level of the S&P 500 index is still lower than at the end of 2021, which may be a symbol of potential problems in the market.
Stifel strategist stated in a report on Tuesday, 'We continue to predict that the S&P 500 index will fall by about 10% from its recent peak to around 4750 points before the end of the third quarter of 2024, more than 100 years of historical trends show that the S&P 500 index constantly hitting inflation-adjusted highs is a necessary condition for entering a 'long bull market.' When the inflation-adjusted S&P 500 index breaks away from this trend, historically, it will enter a 'long bear market', which is a more dangerous period for investors.'
Other market commentators warn that although the S&P 500 index has repeatedly hit new highs this year, the future of the US stock market will still be rocky. Some veteran investors say that the US stock market seems to be overvalued from some indicators, and they warn that there will be a significant pullback in the US stock market.
Edited by Jeffrey