This article first appeared on GuruFocus.
Stifel’s chief market strategist Barry Bannister expects the S&P 500 to retreat roughly five percent toward 6,350 in the coming months, citing tighter Federal Reserve policy and stretched valuations, according to a research note.
He said the market is still processing delayed economic data tied to the federal funding standoff and awaiting signals ahead of the Fed’s December meeting. In his view, investors may continue to reassess risk as enthusiasm around artificial-intelligence spending cools.
Bannister added that earlier this year he underestimated how strongly AI capital expenditure and upbeat sentiment lifted equity benchmarks. He now anticipates a reset as the Fed winds down what he described as an extended period of policy support.
He pointed to valuation pressure and slowing earnings revisions as potential drivers of further weakness. Bannister also flagged inflation hovering near three percent as a factor that may push policymakers toward a slightly firmer stance.
He expects the Fed to react more meaningfully in 2026 as economic momentum eases. A revamped central bank board may not be in place until the June 2026 meeting, suggesting a slower shift in policy direction.