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The S&P 500 index could lose a quarter of its value next year, Stifel said.
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The benchmark index appears to be in a “mania”, the firm’s strategists said in a note.
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Investors could see a long-term impact as manias tend to have lower returns over the next decade.
The S&P 500 appears to be in the midst of another “mania,” Stifel said, and investors could see a sharp decline in the benchmark index sometime next year.
Strategists at investment firms pointed to high valuations as the S&P 500 index breached its all-time high. A series of all-time highs This year, on the back of improvements economic outlookexpectations for Fed rate cutand the hype artificial intelligence.
But the firm compared the current investment environment to the pandemic stock boom, the dot-com bubble, and the stock market booms from the 1920s to the late 1800s, and said the current benchmark index resembles the frenzy that occurred the last four times. Ta.
The company added that the “exceeding value” growth returns in today’s market look “about the same” as before the 1929 crash.
“We looked at the stock market with a blank slate and got the same (shaking head) emoji response: Despite all the soft policy and Fed interest rate cut optimism, the S&P 500 is up almost 40% year-over-year, an overshot,” the strategists said in a note Tuesday.
If the S&P 500 follows the path of “classic mania,” it would mean the benchmark index would rise to around 6,400 before returning to 4,750 next year, strategists said.
“Certainly, you can cherry-pick the best of them and apply the most overvalued cyclically-adjusted valuation levels of the past 35 years to show an additional upside of about 10%. But the same analysis of the century-long mania also puts the S&P stock back “500 in 2025 and 500 by the start of 2024 (down 26% from its expected peak),” the note added.
Strategists suggested that the uncertainty surrounding the Fed’s rate cuts could put stocks in a tough spot next year. The Fed signals the possibility of further rate cuts, but central bankers also face risks undermine the inflation target If interest rates are cut too soon.
“The bottom line is…if the Fed cuts rates in 2025 absent a recession (two 25s at the end of this year doesn’t count), it’s a mistake and investors will pay the price in late 2025 and into 2026. “This is a historical precedent,” the strategists wrote.
They added that investors could be affected long-term, pointing to past manias that have historically led to poor stock returns over the following decade.
“This has been the case for at least the last three generations, and mania can destroy capital markets as much on the downs as it does on the upswings,” they said.
Several other Wall Street forecasters also said: stock look overratedHowever, investors remain generally optimistic about the outlook for stocks, especially as they expect further rate cuts into 2025.
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