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Buy yesterday and go away? Stifel sees a lost decade for the S&P 500


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The broader market could enjoy a near-term bounce, but looking longer term there will be almost no return for stocks, according to Stifel’s equity trading desk.

From “the Jan-2021 S&P 500 (SP500) (NYSEARCA:SPY) high (4,800 nominal, 5,100 real) we see the P/E ratio halved the 10 years 2021 to 2031E offset by EPS doubling in the same period (7.2% CAGR), leaving the S&P 500 price about flat in 2031 versus 2021 in real or nominal terms,” strategist Barry B. Bannister wrote in a note. “In this period Value (IWD) should out-perform Growth (IWF) many (but not all) years.” (Emphasis added.)

“The ‘tell’ for this scenario will be if commodities (COMT) (FTGC) are in a ‘secular bull market’ with higher highs/higher lows for ~10 years.”

But a 10-year secular bear market with range-bound trading in the S&P presents the following opportunities, Bannister says:

  • Active (not broad passive) management in a range-bound 2020s decade for equities
  • Sell growth (IWF) after S&P 500 rallies, accumulate value (IWD) after declines
  • Defensives during slowdowns, cyclicals during recoveries
  • Small cap value (SLYV) (VBR) in reflationary recoveries, Small cap growth (SLYG) (VBK) in disinflation
  • Macro hedge funds, or market neutral long/short equity hedge funds
  • If dollar (DXY) (UUP) (USDOLLAR) is weaker, non-U.S. markets over-weight Value factors
  • Covered call option writing when the range-bound index nears the top of channel
  • Alternative investment (e.g., hard assets, including real estate and CTAs)
  • A focus on cash-on-cash return with shorter-term cash payback requirements

“A recession is weak income, sales, production, investment and jobs; we do not see such a ‘classic’ U.S. recession until ~3Q23E,” Bannister added. “That is next year’s problem: whether recessions are caused by policy or shocks, the S&P 500 only plunges when recessions start.

Morgan Stanley’s Mike Wilson said the current stock rebound could see another 10% from here.

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