A trader rested his head on his hands while working during afternoon trading on the floor of the New York Stock Exchange

lighning bolt icon An icon in the shape of a lightning bolt.

lighning bolt icon An icon in the shape of a lightning bolt. Impact Link

This story is available exclusively to Business Insider subscribers. Become an Insider and start reading now.

Don’t get too comfortable at all-time highs, Stifel’s Barry Bannister says.

Despite the market’s resurgence since plunging in April, Bannister thinks stocks are probably set for a rocky second half of 2025.

The chief US equity strategist at Stifel has a year-end price target of 5,500 on the S&P 500, representing a 12.8% downside from current levels.

While it may seem like an unlikely scenario as the market continues to punch fresh highs, investors may want to take heed. Bannister came into the year with one of the lowest price targets among strategists at major Wall Street institutions. His caution turned out to be warranted, as the S&P 500 plunged 19% from mid-February to mid-April.

Bannister has a couple of arguments in support of his outlook: valuations are high, and economic growth is likely to slow.

“Just look at the core of the economy. How is the consumer and capital spending going,” Bannister told Business Insider on Monday. He was referring to core GDP, or real final consumer sales and fixed business investment. Standard GDP takes into account the volatile inventory building that firms did earlier in the year to prepare for tariffs.

“It looks to us like there’s going to be a slowdown in the second half,” Bannister added.

In a note to clients this month, Bannister shared the chart below, showing the relationship between core GDP and S&P 500 returns. Current trends imply that year-over-year S&P 500 returns are set to dip negative in the months ahead.

Stifel

On valuations, Bannister said stocks are “expensive” and sitting at a “very high level.” Another chart he shared in the note is one way of measuring how rich the market is broadly.

It considers the S&P 500’s price-to-earnings ratio, with the earnings part of the equation being real operating earnings and normalized on a trailing 10-year basis, similar to how the Shiller cyclically-adjusted PE ratio is.

Related stories Business Insider tells the innovative stories you want to know Business Insider tells the innovative stories you want to know

The measure is currently in “valuation extreme mania” territory, rivaling levels reached in 2021, 2000, and 1929 as it’s 1.5 standard deviations away from the 10-year trend. It shows investors may be too optimistic about AI by historical standards.

A macroeconomic downturn is what will likely eventually disrupt the euphoria, Bannister said.

Stifel

But a drop in the stock market isn’t guaranteed, Bannister said. If Powell cuts rates a couple of times in the near future because inflation stays down, he said, expect stocks to jump.

Others on Wall Street predict roughly flat returns the rest of the year, with many targets sitting around 6,000. But some join Bannister’s greater skepticism about the health of the rally: Julian Emmanuel of Evercore ISI said a 15% decline could be coming in the months ahead.

In the short-term, Bannister said he’s most bullish on defensive value stocks. Over a 10-year horizon, he said he likes value stocks, small-caps, and international stocks.