With valuations stretched and global tensions rising, Stifel’s Barry Bannister says the stock market could be underestimating major risks.
00:00 Introduction
00:00:19 Stock Market Outlook
00:01:03 Bull vs. Bear Case
00:01:56 Is 6500 the Likely Outcome?
00:02:42 What Would Trigger a Bear Market
00:05:08 Household Fragility Risk
00:06:29 When Economic Weakness Hits Earnings
00:08:13 Strategy for Long-Term Investors
00:09:34 Barbell Portfolio Approach
00:09:54 Top Advice for 2026 Risks
Transcript:
Caroline Woods:
Here to discuss where the stock market goes next is Barry Bannister, Managing Director and Chief Equity Strategist at Stifel. Barry, thanks so much for joining us.
Barry Bannister:
Thank you for having me.
Caroline Woods:
So safe to say volatility has been the name of the game so far in January. But what’s the big picture for the stock market right now, Barry?
Barry Bannister:
Well, it’s been a tremendous run. You know, a couple of years of double-digit gains. We’re not seeing the makings of a third straight year—or actually maybe pushing a fourth—of double-digit gains. We think price-to-earnings ratios are stretched. The economy has some weak links, and overall we’re looking at a trading range.
Caroline Woods:
And that trading range is a bull case of 7,500 and a bear case of 6,500, according to your 2026 outlook. So upside potential, but real downside risk—especially if we hit 7,500 first. Not a disaster year, but not an easy win. How would you describe it?
Barry Bannister:
It’s really hard to see the upper end of that range in the very near term. Geopolitics are volatile. There’s an assumption out there about what they call the “TACO trade,” that Trump always chickens out. But I do think the Greenland push is going to be very serious through the end.
And Iran—there are just too many military assets in the region for me not to believe that pressure inside the regime is possible. When you add these things together, I think the market is being very complacent about some of the risks.
Caroline Woods:
So would you say 6,500 is more likely at year-end, given some of these headlines? Do the headlines about potential tariffs, the Greenland push, and what’s happening in Iran change your view on where the stock market goes?
Barry Bannister:
You know, it’s funny—we talk about year-end, but investors really don’t have that horizon. They’re very short-term. So we’re thinking in the first quarter or first half, it’s very likely we see 6,500 if things start getting worse. We follow the economy very closely, and there are a number of developments that impact growth this year.
So I think it’s more likely that by midyear you could see the lower end of the range.
Caroline Woods:
As we think about bull case versus bear case, what needs to happen to make you say, “Okay, now the bear case is in control”?
Barry Bannister:
Of course, geopolitics are a very live issue. One of the downsides of being around for a long time—I’ve been in graduate school, business school, the buy side, or the sell side for over 40 years—is that this situation in the Middle East is very real.
There’s a once-in-a-lifetime generational opportunity for change in Iran. And when you look at Greenland, I fully understand what needs to happen there, but there’s such a gulf between the two sides that it’s a long way from being solved.
On the economy, more granularly, it’s simple: the number of people working times the hours they work times what they make per hour. That’s spending power. We’re not getting payroll growth right now, and hourly wages are slowing. Consumption—70% of this economy—is at risk.
Consumers can pull back very quickly. The second issue is AI spending. While enormous last year and supportive of growth, if you compare 2026 to 2025, even spending at the same level produces no growth. GDP is about change—quarter over quarter, year over year.
Earnings estimates could come in light, and valuations relative to interest rates do not look attractive. Ignoring valuation is a dangerous game.
Caroline Woods:
Are markets underestimating how fragile the average household really is right now? Even with today’s losses, the S&P 500 is still only a couple percent from all-time highs.
Barry Bannister:
It’s the K-shaped economy. You’ve got GDP up, but no growth in employment. That creates a wide gulf between the haves and the have-nots, which leads to populism and massive electoral change.
The K-shaped economy may have been a catchy phrase, but it’s unsustainable. If conditions don’t improve for the bottom 65% of workers facing higher costs, affordability becomes a major issue in upcoming elections.
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