{"id":76353,"date":"2025-08-18T02:00:28","date_gmt":"2025-08-18T02:00:28","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/76353\/"},"modified":"2025-08-18T02:00:28","modified_gmt":"2025-08-18T02:00:28","slug":"americas-massive-money-illusion-is-setting-the-sp-500-up-for-a-correction-as-stagflation-takes-hold-top-analysts-say","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/76353\/","title":{"rendered":"America\u2019s massive \u2018money illusion\u2019 is setting the S&P 500 up for a correction as stagflation takes hold, top analysts say"},"content":{"rendered":"

A question looms over Wall Street as it digests the stock market highs in the dog days of summer 2025: Is this another version of the dotcom bubble? Apollo\u2019s Torsten Slok has already calculated that the top 10 S&P 500 companies today are more overvalued<\/a> than in the late \u201990s tech boom. Now the investment bank Stifel is predicting that even as \u201ceuphoric markets party like it\u2019s 1999,\u201d a stock market correction and stagflation are ahead.<\/p>\n

Stifel\u2019s strategists, led by Barry Bannister and Thomas Carroll, wrote in a research note that they are simply \u201cuncomfortable\u201d with the S&P 500 gaining 32% off its April 7 intraday low as the latest GDP figures show the actual economy slowing almost to a crawl. They further warn that \u201chopium\u201d is a powerful drug and that stock markets may be \u201cwhistling past the graveyard.\u201d<\/p>\n

Simply put, Bannister and Carroll say consumers are not as rich as their account balances show, following the \u201cmoney illusion\u201d of COVID-era fiscal stimulus that they described as a \u201cWorld War\u2013level\u201d effort.<\/p>\n

With the mighty American consumer running out of breath amid an economic slowdown in the second half of 2025, Stifel sees a decline of 10% or more in the S&P 500.<\/p>\n

Real economic pain is brewing<\/p>\n

According to Stifel, the apparent health of the U.S. consumer belies an underlying slowdown, with personal consumption\u2014responsible for 68% of GDP\u2014showing effectively 0% growth year to date. Their research highlights several red flags.<\/p>\n

They note that growth in real wage income, the main driver of personal consumption, has slowed to an annual rate of just 1% as stagflation hits.<\/p>\n

In addition, monetary and fiscal policies are in a \u201ctug-of-war\u201d that counteract each other, resulting in a minimal boost to consumer spending.<\/p>\n

And unlike in 2022\u201323, there is significantly less consumer savings to support consumption.<\/p>\n

About that money illusion: Stifel\u2019s data shows that from September 2019 to March 2022, household cash balances increased 44%, while consumer spending doubled against the historic median. Bannister and Carroll argue that the illusion kept spending afloat and helped drive asset prices upward, but it\u2019s now fading after the \u201chelicopter dump<\/a>\u201d of cash in the early 2020s.<\/p>\n

\"\"<\/p>\n

The tell here, they say, is that savings rates have come back into balance with equity net worth, after a period when excess money moved first through consumption, then assets. Put another way, America is essentially cash-poor. <\/p>\n

What\u2019s more, Stifel\u2019s calculation shows that the personal savings rate has fallen dramatically since COVID, so Americans have binged on spending and now have less cash on hand than in the years before the pandemic.<\/p>\n

\"\"<\/p>\n

The analysts warn that this shows the artificial boost has waned and there is no apparent new source of household spending power, amid persistent fiscal deficits and tariffs.<\/p>\n

Bank of America Research has likewise cited<\/a> tariffs as it maintained its call for stagflation instead of recession.<\/p>\n

Correction coming?<\/p>\n

The Federal Reserve has been left in a \u201ctoo late\u201d posture from stagflation, as the rate cuts that Trump keeps calling for can\u2019t save an \u201covervalued\u201d S&P 500, with inflation proving sticky and supply constrained in the economy.<\/p>\n

While the capex boom around AI<\/a> temporarily supports GDP and asset prices, Stifel forecasts this bump will fade as corporate tech spending plateaus. Such a build-out, after all, occurs only once, while consumer spending power is entering a lull that could expose markets to abrupt correction, they write.<\/p>\n

Valuations have ballooned. Stifel notes the S&P 500 hit 6,375 and the Nasdaq<\/a> 100 reached 23,587 earlier this month. Yet history shows that momentum can turn on a dime. \u201cValuation doesn\u2019t matter until it does,\u201d the analysts warn, citing the Great Depression of 1929, the dotcom boom of 1999, and the post-COVID atmosphere of 2021. They forecast a more than 10% selloff beckoning for the S&P 500.<\/p>\n

An explanation for a \u2018weird\u2019 feeling?<\/p>\n

Stifel\u2019s bearish prediction, echoing Bank of America<\/a>, may offer an explanation for a \u201cweird\u201d feeling permeating the economy. Nick Maggiulli, COO of Ritholtz Wealth Management and author of the New York Times bestseller The Wealth Ladder, previously spoke to Fortune<\/a> about the odd state of the economy in 2025 and concluded that \u201csomething weird\u2019s going on.\u201d<\/p>\n

Maggiulli, whose book focuses on what his research indicates about the emerging six economic classes of the U.S., said \u201cthe economy wasn\u2019t built to handle this many people with this much money.\u201d He cited data showing that the upper middle class, with household net worths between $1 million and $10 million, have ballooned from just 7% of the country in 1989 to 18% as of 2022\u201323, with much of this run-up in wealth occurring since the pandemic.<\/p>\n

UBS Global Wealth Management has similarly documented a dramatic rise in the \u201ceveryday millionaire<\/a>,\u201d with a fourfold increase on a global basis since the start of the 21st century. Even after adjusting for inflation, their number has more than doubled in real terms since 2000. \u201cThere\u2019s a good portion of [everyday millionaires] that feel like they don\u2019t have enough,\u201d Maggiulli told\u00a0Fortune, \u201cand they feel like they\u2019re just getting by, even though statistically they\u2019re in the top 20% of U.S. households.\u201d\n<\/p>\n

Introducing the 2025 Fortune Global 500, the definitive ranking of the biggest companies in the world. Explore this year’s list.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"A question looms over Wall Street as it digests the stock market highs in the dog days of…\n","protected":false},"author":2,"featured_media":76354,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[64,63,99,5465,171,4846,193],"class_list":{"0":"post-76353","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-inflation","12":"tag-markets","13":"tag-recession","14":"tag-wealth"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/76353","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=76353"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/76353\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/76354"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=76353"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=76353"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=76353"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}