"US Stocks Drifting from 'Long Bull', 10% Plunge Looming?"

Stifel strategists warn that the U.S. will fall into a "mild stagflation," and the Federal Reserve may not consider interest rate cuts within the year.

According to Stifel strategists, stock markets will experience selling in the coming months, with the S&P 500 index (SPX) expected to decline by 10%.

The firm warns that mixed economic conditions will lead to a weakening of U.S. stocks, with the former making it less likely for the Federal Reserve to cut interest rates as investors hope.

Based on the CME Group's FedWatch tool, the market estimates a 57% chance that the Federal Reserve will cut interest rates by at least 50 basis points this year.

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However, Stifel predicts that due to the U.S. economy appearing to enter a "mild stagflation," Federal Reserve officials will not loosen monetary policy at all in 2024.

This poses a difficult situation for the stock market, with slow economic growth and high inflation, leading to lukewarm returns for investors.

U.S. GDP growth has been cooling since last year, with GDP growth in the first quarter at only 1.3%. Meanwhile, inflation levels in the first three months of this year were higher than expected.

The firm stated that high prices limit the Federal Reserve's ability to cut interest rates in 2024, adding that it expects no interest rate cuts at all this year. Strategists noted in the report:

"The no-landing scenario, increased resource utilization, and higher-than-expected inflation limit the Federal Reserve's ability to cut interest rates, which would be a mild stagflation."

Stifel also said that, by historical standards, U.S. stocks do not appear to be in a bull market. After adjusting for inflation, the overall level of the S&P 500 index is still below the level at the end of 2021, which could be a "symbol of potential problems" in the market.Stifel strategists said in a report on Tuesday, "We continue to forecast that the S&P 500 Index will fall about 10% from its recent peak to around 4,750 by the end of the third quarter of 2024. The trend over more than 100 years shows that the S&P 500 Index constantly hitting new inflation-adjusted highs is a necessary condition for entering a 'secular bull market.'

When the inflation-adjusted S&P 500 Index deviates from this trend, historically, it enters a 'secular bear market,' which is a more dangerous period for investors."

Other market commentators warned that despite the S&P 500 Index hitting new highs this year, the road ahead for U.S. stocks will still be bumpy.

Some veteran investors said that from certain indicators, U.S. stocks seem to be overvalued, and they warned that a significant correction in U.S. stocks is imminent.