In early September, the US stock market showed strong performance, but as the end of the month approached, the market trend became stable.

However, Barry Bannister, Chief Equity Strategist at Stifel, warned that the excessive optimism of investors in the fourth quarter might have a negative impact.

On Thursday, the market once again welcomed a good day, with the Dow Jones Industrial Average and the S&P 500 both setting new highs for 2024, marking the 28th and 39th historical closing highs of the year, respectively.

The Nasdaq Composite Index was not to be outdone, recording its largest one-day gain since August 8th.

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So far, the three major stock indices have risen by more than 1% in September, erasing the losses at the beginning of the month.

The Federal Reserve has just recently announced a 50 basis point rate cut, and many strategists expect the market to continue to rise in the future, partly due to the ongoing push of the artificial intelligence boom and the relatively robust performance of the economy.

However, Bannister is cautious about this.

He believes that although the market's optimism is easy to lose oneself in, the reality may be more inclined to trigger a pullback of the S&P 500 index to around 5000 points in the fourth quarter.

Bannister pointed out that although the fiscal and monetary policies during the COVID-19 pandemic seem to have become a thing of the past, the impact of stimulus measures still exists.

Although the general public has long spent the funds during the pandemic, the enterprises that benefited from it are still continuing to invest.

However, Bannister warned that the market is full of speculative sentiment, and investors' expectations for the future have detached from reality.

He specifically mentioned that the 12-month rolling price-to-earnings ratio of the S&P 500 index has exceeded 26 times, approaching the highest level of the past century.

Moreover, the gap between the compound annual growth rate of large growth stocks and value stocks seems to be a benefit brought by the artificial intelligence revolution, but history shows that the peak of this trend often indicates a recession and a bear market, which has been the case for the past 90 years.

Bannister is also worried that although the US economy has increased in labor supply, the decline in labor demand is another early warning signal of an economic recession.

He questioned whether the market rise expected by many people after the election (due to the elimination of political uncertainty) may not last, especially in the absence of further action by the Federal Reserve.

In addition, he believes that the market's risk assessment of technology stocks that drive the stock market rise is biased.

He pointed out that investors seem to have forgotten the danger of the bubble bursting, and the current situation is similar to the technology bubble in the 1990s.

Moreover, Bannister predicts through mathematical models that the compound annual real total return rate (including stock price changes and dividend reinvestment, deducting the annual inflation rate) of the S&P 500 index over the next decade will be close to 3%, with a nominal return rate of 6%.

Bannister's pessimistic view, although in the minority in the current market, is not alone.

Some other analysts also believe that investors' expectations are too high, and the economic background is still weak.

A few weeks ago, the market was still worried about the prospects of the economy, the semiconductor industry, and the presidential election.

It seems that the possibility of a significant market decline is not great at present, but it is full of variables.

At least before November 5th, this uncertainty will continue.