By George Glover
Investors are headed for a rude awakening after back-to-back years of stellar gains for stocks.
That's according to investment bank Stifel, which said in a gloomy market commentary published Thursday that it expects slowing growth and sticky inflation to weigh on the S&P 500 over the second half of 2025.
Chief equity strategist Barry B. Bannister forecast a "correction to the middle-5,000s" for the benchmark index. On Wednesday, the S&P 500 closed at 6,084 points, taking its gains for the year to 28%. That's about 10% above the 5,500-point level.
The call makes Stifel more bearish than most of its peers. Deutsche Bank set a year-end S&P 500 target of 7,000 points last month, while Goldman Sachs and Morgan Stanley have forecast that the gauge could end the year at 6,500.
Bannister laid out a scenario where U.S. GDP growth slides to 1.5% by mid-2025 -- but the "inflation-leery" Federal Reserve proves too slow to react because it's anxious that cutting interest rates too quickly would trigger a spike in prices. The combination of weak growth, higher borrowing costs, and the disruption caused by the incoming Trump administration would weigh on stocks, he said.
"The environment does not appear conducive to continued equity mania, and we prefer more defensive sectors," Bannister added.
Luckily for investors, Stifel shared a list of stocks they see as less vulnerable to swings in the economy.
Discount retailer Costco Wholesale, which is set to report its quarterly results after Thursday's closing bell, is one of the bank's top picks. Its shares are up about 51% this year, but Stifel still rates the stock as a Buy, and analyst Mark S. Astrachan raised his price target to $1,000 last week.
Medical device designers Abbott Laboratories, Intuitive Surgical, Boston Scientific, and Stryker, tobacco sellers Philip Morris International and Altria Group, and chocolate and cookie maker Mondelez International also featured on Stifel's list of Buy-rated defensive value stocks.
It's a reminder that investors may need to be more careful in their stock picks next year if the overall market is falling.
Write to George Glover at george.glover@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 12, 2024 06:55 ET (11:55 GMT)
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