Stifel's Barry Bannister on markets: 'We see a 10% correction'

Adam Shapiro
·Anchor
3 min read
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Sell in May and go away is more than an investment adage to Stifel Managing Director and Chief Equity Strategist Barry Banister. For him, it's a warning. "Sometime between May and October, May 1, October 31, we see a 10% correction," he told Yahoo Finance Live.

Bannister predicts the S&P 500 (^GSPC) will hit 3,750 at the end of October, down 437 points from Monday's close of 4,187. In a recent note to clients, Bannister wrote that the "S&P 500 P/E is now in the bubble zone last seen in 1998-99 and 1928-29 (only 4 of past 100 years) and we see the P/E declining in 2H21 due to a rising real 10Y yield, even with only modest GDP reflation."

The yield on the 10-year Treasury note hit 1.57% Monday, down from the six month high of 1.74% it reached at the end of March. But Bannister expects yields to rise again over the coming months putting downward pressure on stocks.

"And typically the bond market comes in waves, sort of like COVID. It's not going to just be all at once. And that's all you're going to see. It's going to be another wave up in real yields as the world recovers," he said.

'It's been a fun ride'

Bannister worries multi-trillion dollar spending plans, proposed by the Biden administration, like the American Family Plan, will cause yields to rise and liquidity to tighten.

"This adds up and it's an awful lot of stimulus in a short period of time, largely debt financed, so you can see how yields might rise," Bannister cautioned.

grinvalds via Getty Images

Year to date the Dow Jones Industrial Average (^DJI) is up 11%, the S&P 500 is up 11.5% and the NASDAQ Composite (^IXIC) is up 9.7%.

"I think it's been a fun ride you know it's typically strong November to April, but it sometimes fades," Bannister said.

At the start of 2021, BMO Capital Markets Chief Investment Strategist Brian Belski set a year end price target, 4,200, for the S&P 500. In an April 7 note to clients, he said the target would be hit sooner than expected.

"We believe investors should be prepared for a second half of the year that will likely be weaker in terms of price gains compared to 1H as the reopening and cyclicals trade matures and investors start to digest the implications of an EPS-driven environment."

Belski reaffirmed his price target for the S&P despite an expected weaker second half of the year for stocks. "Ultimately, however, we see the S&P 500 ending 2021 at our price target of 4,200," he wrote.

Bannister says current gains "will be reconsolidated into the summer. So you're going to find that the easy money has been made."

Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps

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