Bannister's worry into year-end is progress on trade. on Bloomberg TV. "But what we really need to see now is a trade deal. Any backtracking on trade? Negative."
Bannister is far from the only strategist who sees the yearlong trade war between China and the US as a stumbling block for equities. But after a 26% rally in the S&P 500 year-to-date, he says investors may have already priced in much of the progress on the so-called Phase 1 deal. He specifically flagged his model, which shows that the S&P 500 has run above the level implied by a rebound in US manufacturing, as measured by the purchasing managers' index. Additionally, the yield curve, or gap between short- and long-term US Treasury yields, has already flashed its reliablea trade deal in order to avert an economic downturn that would hurt stocks.
If indeed the market has already priced in much of the trade progress, any news of deceleration could set it back, even asDespite Bannister's call for a potential market correction in December, he remains bullish on the stock market into 2020. He sees a 5% return for the S&P 500 in 2020, but twice that — or 10% — for a pair trade that bets on cyclical industries and bets against defensive industries.
His examples of the former include energy, industrials, materials, and technology, while real estate, utilities, telecoms and staples make up the latter category.