Brace for impact: Stagflation fears could wipe 10% off stocks, says Wall Street’s Doom Prophet Barry Bannister

Wall Street is worried about the possibility of a "worst-case scenario" in the US economy, one that would send stock prices plummeting by as much as 10%, as per a report.

Stifel managing director and chief equity strategist Barry Bannister has been among the few bears in an optimistic market. He is predicting the S&P 500 would end 2025 in the mid-5000s, reported Business Insider. His call for a potential stagflation scenario may serve as a wakeup call to investors.

Stagflation: A nightmare of the 1970s?

Bannister is forecasting that by mid-2025, the US might enter an episode of moderate stagflation, with high inflation but flat economic growth, as per Business Insider. A scenario similar to the 1970s as there were sky-high prices and growing joblessness.

According to Business Insider, while most investors expect another strong year of growth and inflation to continue cooling in 2025. According to Bannister, there are early signs that stagflation is beginning.

Rising inflation: More trouble ahead

As per the report, inflation has already increased over the past few months, with consumer prices increasing by 3% from the year earlier in January and more than economists expected and above the 2.9% pace in the previous month. Bannister highlighted that the Trump-era tariffs might be driving up costs for consumers, reported Business Insider.

Bannister said, "I think it's foolish that people assume that inflation's going back down to 2%. It's not going back down to 2%, not without a recession," as quoted by Business Insider. He also claimed, "Tariffs undo a lot of the disinflation."

Economic growth faces major headwinds

The inflation concern is further complicated by indications that economic growth already is slowing. Consumer spending, which accounts for roughly 70% of US GDP, has started to fall, as per the report. Retail sales declined almost 1% in January, as per data from the Commerce Department.

Business Insider also reported that worker productivity has slowed dramatically, dropping from its 2020 peak of 7% to a mere 1.5% in the fourth quarter of 2024.

Bannister cautioned that this productivity slowdown can fuel the inflationary cycle, as per the report. As companies receive less production per employee, they will increase prices to make up for it.

According to the report, the Federal Reserve, which is confronted with rampant inflation, will be unable to lower interest rates, which can put additional pressure on economic growth. Bannister also said that he does not expect the Fed to cut interest rates any further this year.

What this means for stocks

Bannister is forecasting that these economic headwinds will result in a correction in the stock market. With valuations still at historic highs and a combination of sluggish growth and sticky inflation, he is forecasting a 10% sell-off in the second half of 2025.

Stifel forecasted that the S&P 500 will "dip down to 5,500 at the end of the year as this slowdown combined with sticky inflation puts the Fed in a bind," as reported by Business Insider.

Other experts are also concerned about the possibility of stagflation. Mark Malek, Siebert Financial's chief said "You have inflation pressure, and then on the other side of it, you have a situation where you have the potential for an economic slowdown," as quoted by Business Insider.

A dim future for the US economy?

BCA Research stated that the US economy might experience a "mini stagflation" as growth in the economy slows and inflation sticks close to 3% throughout 2025, reported Business Insider. Dhaval Joshi, a BCA strategist, said that this might occur because of a halt in labour supply growth, poor productivity, and high prices, as per the report.

FAQs

What is Stifel's 2025 stock market prediction?
Stifel forecasted that the S&P 500 may drop 10% in the second half of 2025 because there is high inflation, decelerating economic growth, and elevated stock valuations, reported Business Insider.

Will the US face stagflation in 2025?
Yes, experts have cautioned that there is a possibility of stagflation in America.