Advisors navigating client portfolios through record-high equity markets may want to take a closer look at a bearish call from one of Wall Street’s most contrarian voices.
Barry Bannister, chief U.S. equity strategist at Stifel, is forecasting a turbulent second half of 2025 and sees the S&P 500 falling to 5,500 by year-end—a nearly 13% drop from current levels.
While that might sound extreme in the midst of a strong market rally, Bannister’s warnings earlier this year were prescient. He entered 2025 with one of the lowest S&P targets among major strategists. His caution proved justified when the index sank 19% from mid-February through mid-April. Now, as markets rebound, Bannister is again sounding the alarm.
Two primary concerns underpin his outlook: elevated equity valuations and signs of slowing economic momentum.
“Just look at the core of the economy,” Bannister said in a recent interview, referencing real final sales to domestic purchasers—a measure that strips out volatile inventory swings and reflects consumer demand and business investment more accurately. That metric, he notes, is starting to show fatigue, even as headline GDP was temporarily boosted by inventory buildups tied to tariff anticipation.
Bannister expects growth to decelerate in the second half, which could drag down corporate earnings and investor sentiment. In a recent client note, he highlighted the historical relationship between core GDP trends and S&P 500 performance. According to his analysis, the current trajectory of core GDP suggests year-over-year market returns are likely to turn negative in the months ahead.
The valuation backdrop adds further pressure. Bannister describes equities as "very expensive," with broad indices trading well above long-term trend levels. He pointed to a version of the price-to-earnings ratio adjusted for real operating earnings over a trailing 10-year window—akin to the Shiller CAPE. That measure, he argues, is now firmly in “valuation mania” territory, rivaling the extremes of 1929, 2000, and 2021. In his view, the market is overextrapolating the near-term impact of artificial intelligence on fundamentals.
While AI-driven enthusiasm has propelled mega-cap tech stocks higher, Bannister sees that optimism as historically stretched. He cautions that a macroeconomic pullback—not unlike past episodes of over-exuberance—could snap investor expectations back to reality.
Still, Bannister doesn’t rule out the possibility of a more benign outcome. If inflation continues to ease and the Federal Reserve initiates rate cuts, that could provide a temporary lift to equities. “If Powell cuts rates a couple of times, stocks will jump,” he said. But he frames that scenario as a counterbalance to—rather than a negation of—his broader downside thesis.
For advisors managing long-term allocations, Bannister's preference is clear. In the short term, he favors defensive value stocks, which tend to outperform during late-cycle slowdowns or market pullbacks. Over a 10-year horizon, he recommends tilting portfolios toward value names, small-caps, and international equities—areas that have lagged in the current cycle but may offer relative outperformance if U.S. growth moderates and the dollar weakens.
While many Wall Street strategists maintain year-end S&P 500 targets closer to 6,000, some are echoing Bannister’s caution. Evercore ISI’s Julian Emanuel has also warned of a potential 15% drawdown, citing similar concerns around stretched valuations and softening economic data.
For RIAs and portfolio managers, Bannister’s forecast is a reminder to assess downside risk carefully, especially for clients heavily exposed to U.S. large-cap growth. The recent rally may have created an opportunity to rebalance toward segments with more favorable valuation profiles and stronger fundamentals in a slowing macro environment.
In a year marked by elevated expectations and strong performance, Bannister’s warning cuts through the optimism with a simple message: markets may have gotten ahead of themselves—and the second half could look very different from the first.
