Stocks to end 2025 lower on sticky inflation, economic slowdown, Stifel predicts

On By Littum

The stock market will end 2025 lower than its current levels, according to Stifel investment strategist Barry Bannister.

Bannister sees sticky inflation prompting the Federal Reserve to keep interest rates high as economic growth weakens, serving as key catalysts for the eventual rebound in the stock market rally. Bannister sees the S&P 500 (^GSPC) ending 2025 in the mid-5,000s. As of Thursday afternoon, the S&P 500 was just hovering back for a record high of around 6,070.

Among the more than 17 strategists tracked by Yahoo Finance who have pegged the 2025 end for the S&P 500, Bannister is the only strategist who calls for the benchmark index to decline in 2025. Yet he is not alone in calling for a pullback in the second half of 2025. On Wednesday, Fundstrat head of research Tom Lee said he believes the S&P 500 will rise to 7,000 midway through the year before falling to 6,600.

“The environment does not appear conducive to continued equity mania and we prefer more defensive sectors,” Bannister wrote in a note to clients on Thursday. He added that slower economic growth would benefit “defensive value” sectors, including healthcare ( XLV ), Utilities ( XLU ) and Staples ( XLP ).

Bannister believes the Fed will cut interest rates by 25 basis points at each of its next two meetings before introducing an extended pause in rate cuts due to sticky inflation and “zero fiscal policy visibility.”

To Bannister’s point, recent data has shown that inflation is not falling quickly to the Fed’s 2% target. This has led economists to believe that the Fed is likely to cut interest rates less than originally hoped in 2025.

Strategists have argued how much Fed tapering in 2025 is not the key determinant of the stock market. Instead, they argue, the key is the US economic growth trajectory.

“The growth backdrop has been a key driver (of the stock market rally),” Charles Schwab senior investment strategist Kevin Gordon told Yahoo Finance. “So if you still have relatively sticky inflation, but if the economy’s run rate is still relatively strong, which has been the case for most of this year, then I think the market can continue to do well.”

Brown bear, Ursus arctos horribilis, floating and fishing for salmon in the river, The calorie consumption would be far too high to catch live fish. What interests him is dead salmon, although only half the nutritional value of live salmon. (Photo by: Education Images/Universal Images Group via Getty Images)
Brown bear, Ursus arctos horribilis, floats and fishes for salmon in the river. (Education Images/Universal Images Group via Getty Images) · Education images via Getty Images

Continued strong growth from the US economy has been a key driver behind many of the calls for the bull market to continue into 2025. Wells Fargo’s Christopher Harvey has said he thinks the S&P 500 will end next year at 7,007 and has highlighted a “cyclical opportunity catalyzed by upward GDP revisions.”