Stifel Forecasts S&P 500 Will Drop 10% as Soon as This Quarter

Stalled-out progress on inflation, which will push Federal Reserve interest-rate cuts to later than traders currently expect, is probably going to trigger a big decline in U.S. equities in the coming months, according to Stifel Nicolaus & Co.’s Barry Bannister.

The S&P 500 Index will likely drop roughly 10% in the second or third quarter to around 4,750, the strategist and his team warned clients in a note Sunday.

With Stifel projecting a mid-year increase in a key inflation gauge, the firm’s models indicate monetary easing will be further delayed, causing equities to plunge.

“The next 500 points for the S&P 500 are down,” Bannister wrote. Since late April, “we have been wary of a broad S&P 500 correction in the middle quarters of 2024.”

The stock market is up almost 4% this month, recouping the brunt of an April slump that came as traders dialed back bets on Fed easing this year.

Still, after a roughly 27% advance from lows touched in late October, investors have been at a crossroads about what might power the market to additional gains in 2024, particularly before a seasonally weak period and with Fed officials signaling they intend to to keep rates elevated for longer.