Stifel foresees a significant market downturn by the end of 2024. Chief equity strategist Barry Bannister warned the S&P 500 could fall by 12% in the fourth quarter.

What Happened: Bannister highlighted various concerns, including high valuations and speculative investor behavior. “Our instruments tell us to expect an S&P 500 correction to the very low 5,000s by 4Q24,” he stated, reported Business Insider.

He noted that current stock market valuations are nearing a “near three-generation high” with the S&P 500’s price-to-earnings multiple around 24x. Additionally, the outperformance of large-cap growth stocks relative to value stocks is reminiscent of peaks seen in February 2000 and August 2020, which preceded bear markets.

Bannister also pointed out that rising labor supply from increased immigration has bolstered economic growth, but overall labor demand is waning. “Fading labor demand is now symbolic of recession risk,” he said, mentioning that the non-farm payroll 6-month diffusion index has dipped below a “recession trigger level.”

He further explained that the typical “pre-election juice” for the economy might diminish towards year-end, impacting stock performance. Lastly, Bannister warned of a potential bubble in technology stocks, comparing it to the dot-com bubble of the 1990s.

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Why It Matters: The warning from Stifel comes on the heels of several significant market events.

Additionally, in early September, equity strategist Tom Lee warned of a potential 7%-10% market pullback, attributing this to historical trends showing September as the weakest month for stocks. Lee urged caution but also advised investors to be ready to “buy that dip.”

More recently, the Federal Reserve’s decision to cut interest rates by 0.5% triggered a market rally, despite concerns over inflated valuations. This move led to a significant surge in U.S. stocks and commodities, while reducing bond market volatility.

The rate cut also influenced investor behavior, with a shift away from money market funds and into longer-duration bonds, as noted by fixed-income portfolio manager Timothy Ng.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote