Stocks could be in store for a correction in 2025 as inflation remains persistently above the Federal Reserve’s 2% target, according to Stifel Financial. The investment bank forecast that the S & P 500 index will fall to the mid 5,000 support level in the middle of next year, equal to a 10% to 15% correction, after peaking in the first half of the year, according to chief equity strategist Barry Bannister. The firm cited stubborn price pressures alongside sluggish growth in gross domestic product as key catalysts for its S & P 500 forecast, with Bannister seeing real U.S. GDP slowing to about 1.5% by the middle of 2025. “All this occurs at a time when stock valuations and Growth vs. Value are at extremes, since every generation has a bubble mentality (inflation adjusted S & P 500 peaks 1929, 1968, 2000), this being ours,” Bannister wrote in a 71-page report on Thursday. “The environment does not appear conducive to continued equity mania, and we prefer more defensive sectors (e.g., Healthcare, Utilities, Staples),” he added. The strategist also said he expects the Federal Reserve to hold interest rates steady at the central bank’s Jan. 29 policy meeting, keeping the overnight borrowing rate at 4.00% to 4.25%. He forecast two more rate reductions in 2025 before the Fed ultimately concludes cutting rates in the second half of 2025. Bannister’s forecast comes as stocks have lately cooled in response to a lack of progress in bringing inflation down further. November producer prices came in above Wall Street estimates on Thursday, while consumer prices on Wednesday matched economists’ forecasts. As of Thursday, Fed Funds futures trading data is pricing in a 98% chance that the central bank cuts interest rates a quarter percentage point at its policy meeting next week. The S & P 500 has advanced more than 27% in 2024, the Nasdaq Composite has gained more than 32%, and the Dow Jones Industrial Average is up 17%.
Stifel says a 10%-15% S&P 500 correction is coming
