The benchmark S&P 500 index has been in a sharp uptrend over the past three months – but experts at Stifel are unconvinced the gains will sustain in the second half of 2025.
Stifel strategists led by Barry Bannister warned investors in their latest research note that the S&P 500 could tank to the 5,500 level or about 12% from here over the next six months.
At the time of writing, the benchmark index is up more than 25% versus its year-to-date low.
Why does Stifel expect a pullback in the S&P 500 index?
According to Barry Bannister, the US economy is headed for a sharp slowdown in the back half of this year, which he believes will lead to a meaningful decline in the S&P 500 as it usually does.
“We see slower 2H25 US Core gross domestic product (GDP) as consumption slows due to weaker real employment income and falling capex,” he told clients in a research note today.
Stifel’s senior strategist now sees consumption growth slipping under 1.0% on a year-over-year basis in the second half of 2025.
Bannister’s remarks arrive shortly after the Trump administration extended the deadline for dozens of countries to sign a comprehensive trade agreement with the United States from July 9th to August 1st.
Tariffs uncertainty remain an overhang on SPX
In his research note, Bannister agreed that tech companies are significantly more profitably today than in the `90s bubble – but said “overvaluation” remains a significant overhang.
“The environment of slowing Core GDP with sticky inflation favours a reprise, essentially a market echo of the ‘stagflation trade’ which is what out-performed in the 1Q 2025 correction,” he added.
Moreover, higher tariffs under the Republican government in the name of economic protectionism could lead to a resurgence in inflation.
This could see the federal funds rate keeping higher for longer – which typically serves as a notable headwind for the benchmark S&P index.
What US stocks to own in the second half of 2025?
Jerome Powell – the current chair of the US Federal Reserve confirmed in a statement last week that Trump’s tariffs are pretty much the only reason why the central bank hasn’t announced its next rate cut so far.
“In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the US went up materially as a consequence of the tariffs,” he revealed at a central bank forum in early July.
Investors should note, however, that Stifel’s strategist Barry Bannister does not recommend pulling out of the US stock market entirely due to the aforementioned concerns.
Instead, carefully picking individual stocks within specific sectors is what he favours for the back half of 2025. At writing, Bannister is overweight healthcare, consumer staples, and utility stocks.
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