Stifel’s Bannister explains the two factors that saved the economy this year

? (?) 00:00.000

Well, does it? Do Do rate cuts help fuel this rally?

Barry Bannister (Chief Equity Strategist) 00:06.400

Yeah, the way we look at rates is um to take the Fed funds minus the forward, not the trailing, but the forward core PCE inflation. And on that basis, the Fed could cut two more times to 3%, 3.1, which is in the futures. And that would just take them to the post-World War II

Barry Bannister (Chief Equity Strategist) 00:26.320

80-year median, the middle of rate in real terms, the rate after inflation. So, they're not overly easy now and they would just be neutral at 3% sometime in 2026.

? (?) 00:43.080

Your your prediction for next year, it sounds like regardless of rate cuts or not, we run between 6,500 on the S&P 500 to 7,500. We're almost at 7,000 right now. What could fuel that higher? And what are the barriers that you see?

Barry Bannister (Chief Equity Strategist) 01:03.400

Yeah, about 7,000 for the S&P 500, which I think you know the cues are popular now. So the QQQ would be somewhere between 575 and 650. But what we'd be looking at is a range-bound market. Typically, when price earnings ratios rise, you almost always have a really positive

Barry Bannister (Chief Equity Strategist) 01:26.120

market. But when you have sort of normal PE PE compression. The PE ratio comes down even as the earnings grow. The odds of an outcome being all over the board go up a lot. You could be upward down on average about 13%. So we're in the digestion phase, a consolidation phase. Four

Barry Bannister (Chief Equity Strategist) 01:47.680

years in a row in 2026 of double-digit gains hasn't been seen in decades and is very rare. So there's a lot of optimism going into next year and we're just a little more cautious.

? (?) 01:59.000

All right. So if you're seeing caution, especially you're saying around the big tech cyclical growth. Where would you find opportunity moving into 2026?

Barry Bannister (Chief Equity Strategist) 02:10.520

You know, I would I would hedge some of that big tech exposure with things like, for instance, in defensives, waste, waste management, Republic Services, the charts look good. In food, beverage, and tobacco, Philip Morris looks good. Healthcare, biotech, it's going to be a big

Barry Bannister (Chief Equity Strategist) 02:30.240

beneficiary of AI. It already is and it's it's got more defensive modes around their products. Electricity infrastructure, you know, we're going to have to do what's called T&D, transmission, distribution, and hooking up capacity. Capacity that was built particularly in

Barry Bannister (Chief Equity Strategist) 02:47.200

alternatives that's just not on the grid. Um and if you want growth, you know, software looks better than some of the other internet names.

? (?) 02:55.440

And when you look at the consumer, which is 68% or so of GDP, Do you think that CapEx and AI can counterbalance whatever cracks there might be in consumer?

Barry Bannister (Chief Equity Strategist) 03:08.320

Yeah, it's a great question. I mean if you look at 2025, where we were wrong after April and what really saved the economy was two things. One, the capital spending on AI was very very high, sort of saved things. And the other was this K-shaped economy, which is not politically

Barry Bannister (Chief Equity Strategist) 03:27.240

sustainable and is uh if I were in the administration, I would have a five alarm fire. Uh we've got to do something about the fact that the top end is really all that's doing well. Um so if you're going to reaccelerate the broad economy, you're going to bring back some inflation

Barry Bannister (Chief Equity Strategist) 03:45.960

risk. It's sort of full resource utilization. So we're watching unemployment. Uh it could go up, which would be a sign that you might be backsliding into a broader kind of recession or it could go down, which means that you're looking at risk of inflation and you would see that

Barry Bannister (Chief Equity Strategist) 04:04.000

in the bonds and in the Feds posture.