Massive 2-Year Stock Market Rally Has Our Favorite Wall Street Guru Very Worried

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• The stock market is up almost 40% year over year.
• Many feel that a swift 10% to 20% sell-off could be coming soon.
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If there is one voice on Wall Street that we always listen to at 24/7 Wall St, it is Stifel’s Barry Bannister , and with good reason. We have watched and documented his market calls for years. Some of them are among the most incredible and courageous calls ever made by a sell-side research chief institutional equity strategist and his staff.

The unfolding of the COVID-19 pandemic crushed the stock market in the first quarter of 2020. We saw a stunning 34% decline from the high on February 19, 2020, to the low on March 23. At the absolute bottom of the selling, Bannister suggested that clients buy stocks. He reiterated his call later in 2020 and increased his target prices for the major indexes. Those who followed his advice collected some massive gains.

In a recent presentation, Bannister said flat-out that the massive rise in the S&P 500 and the comparison with past stock manias (dot-com bubble versus AI) indicate that, while there could still be a 10% upside move from current levels, the venerable index could also trade back to where it was at the start of 2024. That would be a massive 26% decline from the projected peak.

Bannister said this when discussing where we currently stand:

Growth returns in excess of Value are now at almost exactly the same level today as in 1939 (Great Depression = post-GFC), a three-generation round trip implying that the 100-year flood of the premium Growth enjoys over Value has topped. Populism is anywhere and always a big spender, an enemy of Depression, and a close ally of reflationary recovery and Value (Populism is not a friend to capital, et al.). No matter who wins next month, we are of the view that populism has already won.

He also pointed out how stretched current valuations are and that rate cuts in 2025 could hurt:

As we have described, the S&P 500 over-valuation has been supported by (and fully reflects) the Fed, which is likely cutting the real Fed funds rate, as they have been wont to do since the advent of the Greenspan Put in 1987. Has there ever been a closer friend than Fed-to-markets since the 1987 Crash, which occurred five months into our career as an analyst?

We could be forgiven for having a heart emoji for the Fed. But alas, we also show that there is a cost to “so much winning,” as a preemptive Fed cutting cycle would likely undermine the Fed’s 2% inflation target. Perhaps this ties into our reading of periods in the past with similar dynamics (1934, 1947, and 1969) vis-a-vis the dynamics of recent years. The conclusion is that if the Fed cuts rates in 2025 absent a recession (two 25s as this year comes to a close do not count), then that would be a mistake, with investors paying the price later in 2025 / 2026, based on historical precedent.

The bottom line is that if you have seen significant gains in your portfolio, it makes sense now to start taking some gains and moving some of those profits to investments where investors' principal is protected. These include high-yield money market funds, quality municipal bond funds, and monthly pay certificates of deposit.

If history is any guide, the election is still a wildcard for investors. We could see some potential turmoil after the final results are tabulated. Now is the perfect time to take advantage of a soaring stock market that has been hitting all-time highs on a seemingly daily basis.

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