A rare bear on Wall Street, Barry Bannister, predicts the US economy may enter a period of mild stagflation by year-end. This scenario combines sticky inflation with slower growth, which could lead to a 10% hit to stock prices.
Stifel’s chief equity strategist sees early signs of stagflation taking shape, despite most investors expecting strong economic growth and cooling inflation in 2025. The recent acceleration of consumer prices, rising tariffs, and waning productivity growth are all contributing factors. Bannister warns that sticky inflation will impact consumers, which could lead to a slowdown.
Consumer spending accounts for 70% of US GDP, but households are already showing signs of retreating, with retail sales falling nearly 1%. Real average hourly earnings have also slowed, and worker productivity growth is trending down. This could create an ugly feedback loop where waning productivity leads to higher prices, while high inflation prevents interest rates from being cut.
Bannister expects the combined headwinds of slower growth and higher rates to spark a 10% sell-off in stocks by the second half of the year. Historically high valuations and the Fed’s forecast for the S&P 500 will also contribute to this correction.
Source: https://www.businessinsider.com/stock-market-outlook-sp500-correction-stagflation-economy-interest-rates-slowdown-2025-2