Stocks will end 2025 lower due to sticky inflation, economic slowdown, Stifel predicts

The stock market will end 2025 lower than its current levels, according to Stifel chief investment strategist Barry Bannister.

Bannister sees sticky inflation prompting the Federal Reserve to hold interest rates high as economic growth weakens, serving as key catalysts to the eventual pullback in the stock market rally. Bannister sees the S&P 500 (^GSPC) ending 2025 in the mid 5,000s. As of Thursday afternoon, the S&P 500 was hovering just shy of an all-time high at about 6,070.

Among the more than 17 strategists tracked by Yahoo Finance who have listed 2025 year-end calls for the S&P 500, Bannister is the lone strategist to call for the benchmark index to fall in 2025. Still, he isn’t alone in calling for a pullback in the second half of 2025. On Wednesday, Fundstrat head of research Tom Lee said he believes the S&P 500 will rally to 7,000 midway through the year before falling to 6,600.

“The environment does not appear conducive to continued equity mania, and we prefer more defensive sectors,” Bannister wrote in a note to clients on Thursday. He added that slower economic growth would benefit “defensive value” sectors, including the Healthcare (XLV), Utilities (XLU), and Staples (XLP) sectors.

Bannister believes the Fed will cut interest rates by 25 basis points at each of its next two meetings before enacting a longer pause on rate cuts due to sticky inflation and “zero fiscal visibility.”

To Bannister’s point, recent data has shown inflation isn’t falling rapidly to the Fed’s 2% target. This has prompted economists to believe the Fed will likely cut interest rates less than initially hoped in 2025.

Strategists have argued how much the Fed cuts in 2025 isn’t the key determinant of the equity market. Instead, they argue, the key is the US economic growth trajectory.

“The growth backdrop has been a key driver [of the stock market rally],” Charles Schwab senior investment strategist Kevin Gordon told Yahoo Finance. “So if you have still relatively sticky inflation, but if the economy’s run rate is still relatively strong, which has been the case for most of this year, then I think the market can continue to do well.”

Continued strong growth from the US economy has been a key driver behind many of the calls for the bull market to keep running in 2025. Wells Fargo’s Christopher Harvey has said he believes the S&P 500 ends next year at 7,007 and has highlighted a “cyclical opportunity catalyzed by upward GDP revisions.”

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