By Teresa Rivas

One of Wall Street's longtime bears isn't saying "I told you so." But he is warning that things probably aren't going to get better soon.

Barry Bannister, who correctly predicted a good deal of the S&P 500's performance in 2023, was one of the few cautious voices on the Street late last year. Ultimately, his call that the S&P 500 would drop to the low 5,000s in the fourth quarter wasn't wrong, just one quarter early.

On Friday, Bannister reiterated his belief that the index probably will hover around the 5,500 mark in the second quarter because investors can expect "no major equity index upside absent a sharp reversal by the White House, which we do not expect."

"The style of President Trump is maximalist and credible threats followed by negotiations, utilizing purely executive powers whenever possible, which may give us time before second half primarily economic risks materialize," said Bannister, who is Stifel's chief equity strategist.

That said, tariffs are just one issue. Bannister notes that persistently stubborn inflation and slowing gross domestic product growth were headwinds he was already clocking heading into this year.

"The trade war sharply (perhaps with a Sharpie) underscores existing trends," he said

The upshot is that the earnings picture for the S&P 500 this year suddenly looks much gloomier than just a few weeks ago -- below the general expectations on Wall Street but more in line with his prediction.

Bannister was already concerned the index was priced to perfection. He expects less than 10% year-over-year growth, compared with the average estimate for midteens. Many other strategists are also warning that S&P 500 profits will be much lower than previously thoughtbecause of tariffs.

For now, the S&P 500 is pricing in a slowdown, and Bannister thinks it's too early to call a recession. However, he does think his long-held view that stock returns will be more modest in the future.

"As global rebalancing proceeds (we have concluded that the U.S. reached the limits of Imperial Over-Reach, wealth gaps and imbalances), this Populism likely lasts a generation and causes the cost of capital, inflation and equilibrium rates to remain higher, pressuring the overall market price-to-earnings ratio," he wrote.

In that environment, Bannister argues against buying the dip in tech, instead focusing on defensive value sectors like utilities, consumer staples, and various aspects of healthcare, including pharmaceuticals and equipment services.

That strategy has already worked well this year. The Health Care Select Sector SPDR Fund, Consumer Staples Select Sector SPDR Fund, and Utilities Select Sector SPDR Fund are all in the black, despite the S&P 500's double-digit declines.

Bannister's consistent position during the rally meant many saw him as overly cautious. With the stocks taking it on the chin again on Friday, he seems more like a Cassandra. Investors, though, may be more receptive to his advice than they were when the S&P 500 was riding high.

When the T. rex escapes from its enclosure in Jurassic Park, Ian Malcolm -- the proponent of chaos theory -- deadpans, "Boy, do I hate being right all the time."

Perhaps today Bannister feels the same.

Write to Teresa Rivas at teresa.rivas@barrons.com

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April 04, 2025 12:35 ET (16:35 GMT)

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