Stagflation Fears: One Wall Street Bear Predicts a 10% Stock Sell-Off in 2025

As we approach the midpoint of 2025, one prominent Wall Street strategist is warning investors about the looming threat of stagflation and its potential impact on the stock market. Barry Bannister, Stifel's chief equity strategist, has been one of the few bears on Wall Street, cautioning investors about the risks of a 10% stock sell-off this year. In a recent research report, Bannister and his team outlined their concerns about the U.S. economy and the potential for stagflation to drive a market correction.

Stagflation, a combination of slow economic growth and high inflation, can be a challenging environment for investors. Bannister and his team expect U.S. real GDP growth to decelerate to about 1.5% in the second half of 2025, with sticky Core PCE inflation just under 3%. This slowdown in economic growth, coupled with persistent inflation, could contribute to an S&P 500 correction of 10-15% by the second half of the year.

Bannister's concerns are not unfounded. The U.S. economy has been grappling with a combination of slowing growth and rising inflation for some time now. In February 2025, the S&P 500 Index ($SPX) (SPY) was down -0.25%, the Dow Jones Industrials Index ($DOWI) (DIA) was down -0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) was down -0.03%. These mild declines suggest a slowdown in the market, which could be a precursor to a more significant correction.



Investors should be aware of the potential risks and consider adjusting their portfolios accordingly. Some sectors may be more resilient to stagflation, while others may be more vulnerable. For example, energy stocks and gold have historically performed well during inflationary periods. Investors may want to consider allocating a portion of their portfolios to these sectors as a hedge against stagflation.

In addition to sector-specific adjustments, investors may want to consider building up cash reserves, ensuring that dividend-paying investments reinvest dividends and capital gains, and allocating to more defensive sectors like Healthcare, Utilities, and Staples. These strategies can help preserve capital during market corrections and provide a buffer against the potential risks of stagflation.



In conclusion, investors should be aware of the potential risks of stagflation and consider adjusting their portfolios accordingly. While Bannister's prediction of a 10% stock sell-off may or may not come to pass, the risks of stagflation are real, and investors should be prepared. By diversifying their portfolios and implementing defensive strategies, investors can better navigate the challenges of a stagflationary environment.