Market Rally Pauses, S&P 500 Expected to Tread Water

After a strong start to the year, the momentum of stocks has slowed down, with little expectation of a resurgence before the end of 2023, according to renowned market strategist Barry Bannister.

Coming off a challenging August, the market has entered what is typically considered the most difficult month of the year. Despite hopes that stocks will regain their mojo, Bannister warns that they are more likely to remain stagnant.

Bannister, who accurately predicted market trends earlier this year, believes that the S&P 500 will end 2023 close to its current level. In a recent research note, he reiterates his year-end target of 4,400, which would imply a 4% decrease from its current position.

While Bannister was optimistic about the rally in the first half of the year, he now takes a more cautious stance regarding expectations of further upward momentum pushing the S&P 500 above its pre-2022 bear market peak.

During the period from October 2022 to June 2023, Bannister’s research aimed to dispel concerns raised by pessimistic investors. However, he now believes it is timely to evaluate the assumptions of the bullish outliers who anticipate the S&P 500 to reach 4,800 or higher by the end of 2023. Ultimately, Bannister concludes that these excessively positive views are unlikely to materialize.

The S&P 500’s Uphill Battle

The S&P 500 faces an uphill battle if it hopes to surpass its prior peak of 4,796.56, according to Bannister. The current circumstances make it difficult for companies to achieve substantial increases in earnings per share. The Federal Reserve also shows little intention of backing away from raising interest rates, further adding to the challenges.

Artificial intelligence (AI) may not be the anticipated savior without encountering some obstacles along the way. Similar concerns have been voiced by others, taking into account the significant impact of positive tech news throughout 2023.

Drawing parallels to the dot-com bubble burst at the beginning of September 2000, Bannister reminds investors of the potential risks. Although the S&P 500 eventually recovered, it took over a decade for it to reach the same level when adjusting for inflation.

Bannister believes that this time will not see stocks stranded for such an extended period. Other strategists echo his sentiment and see potential for the rally to continue, suggesting that Wall Street’s current bearishness could actually indicate further gains. Additionally, consumer discretionary shares have shown resilience and may defy expectations in 2022.

Nevertheless, with rising interest rates, mixed economic data, and a considerable amount of positive news already factored into stock prices, it wouldn’t be surprising if the rally takes more time to regain its momentum. All signs point to a potential subdued ending for 2023.