Transcript:

Caroline WoodsHere to discuss where the stock market goes next is Barry Bannister, Managing Director and Chief Equity Strategist at Stifel. Barry, thanks so much for joining us.

Barry BannisterThank you for having me.

Caroline WoodsSo safe to say volatility has been the name of the game so far in January. But what’s the big picture for stock market right now? Barry.

Barry BannisterWell it’s been a tremendous run. You know a couple of years of double digit gains. We’re not seeing the makings of a third straight year are actually maybe pushing fourth now on double digit gains. We’re thinking the price earnings ratios are stretched. The economy. There are some weak links here. And overall we’re looking at a trading range.

Caroline WoodsAnd that trading range is a bull case of 7500 and a bear case of 6500, according to your 2026 outlook. So upside potential. But I guess real downside risk especially if we hit 7,501st. So not a disaster year but not an easy win. How would you describe it?

Barry BannisterIt’s really hard to see the upper end of that range in the very near term. You know geopolitics are are are volatile. There’s an assumption out there of what they call the taco trade, Trump all these chickens out. But, I do think that the, the Greenland push pushes is going to be very serious to the very end.

And, Iran. There are just too many military assets in the region for me not to believe that a shoving inside of the regime is not possible. So when you add these things together, I think the market’s being very complacent about some of the risks.

Caroline WoodsSo would you say 6500 is more likely at year end given some of these headlines are do the headlines coming out about potential tariffs and the Greenland push. And, what’s happening in Iran? Change your view at all about where the stock market goes?

Barry BannisterYou know, it’s funny thing. I mean, we talk about year end, but investors really don’t have that is horizon. They just they’re so short term. And, so we’re thinking in the first quarter, first half, it’s very likely we see 6500 if things start getting worse. We follow the economy very closely, and there’s a number of interesting developments there that impact growth this year.

And, so I think it’s more likely that by the mid year you could see the lower end of the range.

Caroline WoodsAs we think about, you know, kind of bull case versus bear case. What needs to happen to make you say, okay now the bear case is in control.

Barry BannisterWell of course I mentioned the geopolitics in that that is very much a live issue. And, you know, one of the one of the downsides of being around for a long time, and I’ve been either I was either in graduate school or business school with graduate school or I was in, the buy side or the sell side for over 40 years.

And, you know, this thing in the Middle East is, is very real. It, it could get, you know, there’s a there’s a once in a lifetime generational opportunity here for some changes in Iran. And then when you look at Greenland, I mean, I fully understand what needs to happen there, but, there’s such a gulf between the two sides that I think that’s a long way from being solved.

And, on the economy, more granular. The issue really is to us, it’s really simple. It’s the number of people working times, the hours that they work, times what they make in an hour. And that’s how much spending power people have. We’re not getting the payroll growth, right now. And the hourly wages are slowing. So we think that consumption 70% of this economy is, you know, somewhat at risk.

And consumers can pull back very quickly. The second thing is that the AI spending, while enormous last year and contributing to growth sequentially, if you compare 26 to 25, even if they spend at the same rate, which is an awful lot of money, there’s no growth. In other words, GDP is how much did you grow quarter on quarter a year on year?

And what did you do for me lately. And so that’s the problem is the GDP just doesn’t look solid to us. The earnings estimates could come in a little light. And the price to earnings multiple valuation which you know a lot of individual investors ignore valuation but they really shouldn’t. It’s a very dangerous game to do that. The valuation versus interest rates does not look attractive.

Caroline WoodsAre the markets underestimating how fragile the average household really is right now? Because even with some of the losses that we’re seeing today, for example, the S&P 500 is still only a couple percent away from all time highs.

Barry BannisterYeah, I mean it’s called the K-shaped economy, right? So you, you know, a K shape you’ve got up for GDP and no growth at all in, in employment. So it’s creating a wide gulf between the haves and have nots. And that results in populism and massive electoral change. I mean, anyone who studies history knows how much things can change.

So the k-shaped economy, it was a nice cliche for the last year, but it’s an unsustainable situation. And, if, if things, don’t pick up for the bottom 65% of people on the, that are working and paying more for things, then affordability will be a absolute wipe out in the next two elections for the incumbents.

So, this could lead to huge changes in the tax code, corporate taxes, how much companies earn and how much individuals get to keep on their investments. So I just think people are being way too complacent. It’s actually tedious.

Caroline WoodsAt what point, though, does the k-shaped economy stop being a buzzword and actually start showing up in earnings? Will it be this earnings season?

Barry BannisterWell, the only companies that really have been earning substantially above their cost of capital are the big technology companies. So software, semiconductors, computer hardware like Apple, some of the internet and media companies. These monopolies are able to extract enormous margins on their core businesses, their core business things like advertising. And as a consequence, they’re branching out into AI, but it’s proving to be much more capital tied up in that business.

You know, data centers or on or off balance sheet. They’re still on the hook for those payments. So I don’t care if they if meta, for example, keeps their, data center on or off the books, they’re still going to owe them lease payments and it is debt. So we’re going to have to infuse that debt into their valuations.

So when I look at this, it’s a it’s a mess. You know, AI sounds promising. It is enormously capital intensive for now. Technology changes could change that and leave a lot of assets stranded. And, you know, I’ve been around long enough to remember the fiber optic and internet bill. Now, 25 years ago, I was already an analyst for 15 years by that time.

We were all a little surprised at how technology changed very quickly and caused a number of companies that had built out, like fiber optic, to go bankrupt.

Caroline WoodsYeah. Barry, you’re pointing out a lot of reasons for the market to be volatile. A lot of potential headwinds. So I guess the question is if I’m a long term investor watching this, what’s the play right now. What do I do.

Barry BannisterWell we would hedge if you’re you know, by definition anyone that’s in the investment market today is very long. The technology side. The top ten stocks of which 8 or 9 or technology companies, the top ten stocks in the Standard Poor’s 500 are about 40% of the index, which is a very high number.

You have to go back over 50 years to the late 60s, early 70s, the nifty 50 era, to find that kind of concentration in the stock market.

So just as they discovered in 1973, 74, 50% bear market, being concentrated and then writing them down is a very painful proposition. So the only way to approach your core technology, positioning, is to own some defensives, like, food stocks, beverage, tobacco, some of the, waste stocks, which are really down and out right now.

That is the defensive hedge to the offensive position. We’ve been playing an offensive game just like in football. But we really need to beef up the defensive side if we’re not going to get wiped on the scoreboard.

Caroline WoodsOkay, so you still want the tech exposure. You just need to level set it with something else, something more defensive. So is that a barbell approach if you will.

Barry BannisterYeah, it’s a barbell.

Caroline WoodsSo just to wrap up, what’s your best advice for investors, as they sit through things like headlines on tariffs and geopolitical noise and, you know, as they worry about what happens to their money in 2026. Oh, wait, that’s all.

Barry BannisterWell, 2026 could be a pivotal year. We will see. But, you know, I would urge investors to read, financial history. You know, we have been here four times in our two century history of the United States, of the dawn of populism. And it does not matter if it is, you know, Trump and right wing populism or Bernie Sanders type in the left wing populism.

Populism is anywhere and always the enemy of, central banks, stable money, wealth. And, it’s a good way to get wiped out for a generation. So, when you look at it, major crises and all wars occurred in the aftermath of the populist transitions, going back to Andrew Jackson, Theodore Roosevelt, Franklin Roosevelt, and now Trump.

And I would argue Biden was, he attempted to be a populist, but, failed in the Senate.

And that was really a big deal when the Build Back Better program failed, that ended, that pursuit. And now we have another approach. And if that works or not, we will see. But populism is, causing a lot of sweat. That’s the Federal Reserve under the collar. And it should.

And populism is going to lead to massive legislation changes in the coming year.

First we will see with, you know, which way it goes. And so I think the one thing that I would urge investors to do is to study financial history. And you can do that through, you know, just go on Amazon or anywhere and type the word financial history. And there’s 150 titles you can just pull from and read about it.

Caroline WoodsOkay. All right. We’ll leave it there. Have to study up. Barry Bannister, really appreciate your insights. Thanks so much.

Barry BannisterThank you. Good to see you.