The S&P 500 Index could rally close to an additional 10 per cent this year, if past market manias are any guide, according to Stifel, Nicolaus & Co. But like prior “bubble” episodes, this one eventually has to pop too, the firm’s chief equity strategist says.

Stifel’s Barry Bannister says the U.S. stock benchmark has a shot at reaching the 6,000 mark before the end of 2024 as investors keep piling in, up from just below 5,500 Thursday. But by mid-2026, he expects the gauge to sink back to where it began this year — around the 4,800 level — erasing a fifth of its value.

To be clear, the forecaster says risk assets, and equity markets in particular, are due for a correction much sooner. His official year-end S&P 500 target stands at 4,750, implying a drop of some 13 per cent from today. But the euphoria among investors is set to propel shares higher before they eventually plunge, he says.

“Timing is everything,” Bannister and his team wrote Wednesday in a note to clients, “and we are aware that investors may be in full-fledged bubble/mania mode which looks past our concerns.”

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U.S. stocks have extended their bull run as investors expect signs of cooling inflation will lead the Federal Reserve to reduce interest rates this year. That view, coupled with strong earnings and fervor for companies linked to artificial intelligence, have powered the S&P 500 to a gain of almost 15 per cent this year. 

Some on Wall Street, however, have warned that the market is overbought and the strength too narrowly concentrated, making equities vulnerable. The average year-end target among strategists tracked by Bloomberg is about 5,297, with Evercore ISI’s 6,000 call at the upper end and the lowest forecast coming from JPMorgan Chase & Co. at 4,200.

For Bannister, the red flag for stocks is coming from the crypto universe. Since the onset of the pandemic, Bitcoin has been correlated with the Nasdaq 100 Index, he says, and with the crypto benchmark faltering this month, that’s a warning sign for U.S. stocks.

“The weakening of Bitcoin signals an imminent S&P 500 summer correction and consolidation phase,” the strategist wrote. “The correction we expect in risk assets (our focus is on equities) is furthered by our view that the Fed shifts away from its current cautious dovishness as inflation remains high.”

The forecaster correctly predicted the stocks rally in the first half of 2023 as many of his peers warned of a recession-triggered correction. But after calling that advance, he has mostly stuck to a target signaling that further returns would be muted. Judging by his official call now, he’s one of few remaining bears left among prognosticators tracked by Bloomberg.