• Stocks are up since last week’s sell-off but there’s still reason to be cautious, Stifel’s Barry Bannister said.

• Bannister said the Fed’s 2% inflation goal is “only a pipe dream” with housing expected to rebound.

• He reiterated his expectation for a ten% market correction to push the S&P 500 to five,000 by October.

It is perhaps tempting to pile back into the stock market as equities stage a comeback after last week’s big rout, but investors should tread frivolously.

If the economy keeps slowing and eventually enters a recession, a bear market is imminent as inflation stays sticky, Stifel’s chief strategist Barry Bannister said in a Tuesday interview on CNBC.

“It’s funny, there’s Goldilocks and the three bears, and I feel the market not only believes in Goldilocks, nevertheless it thinks the three bears are extinct species,” Bannister said.

Bannister has been cautious on stocks this summer and has previously called for a pointy pullback from sky-high valuations. He backed up his prediction of a 10% market correction to push the S&P 500 to five,000 by October, noting that stocks at that level would still be fairly expensive.

He pointed primarily to inflation because the catalyst for further declines, because it has been “slightly stickier than people expect.”

While the Federal Reserve targets a PCE of two.8%, Bannister expects the central bank to focus on closer to three% by the fourth quarter resulting from persistent housing inflation.

With markets seeing a September rate cut as all but guaranteed, Bannister said there will certainly be an enormous rebound in housing inflation by 2025, which might cause more pricing pressure.

Those aspects mean the Fed’s goal for two% inflation is “only a pipe dream,” he said.

“The ground now looks like what was the ceiling within the 20 years pre-Covid for inflation. And that is a launching point for the next move later with a stronger economy within the mid-twenties,” he said.

Weak GDP, consumption, fixed asset investment and net export data expected within the second half of the yr also don’t bode well for the economy, Bannister added.

“Brokers love bull markets, it sells stock,” he said. But “the market’s naturally manic depressive,” and it “swings from one extreme to the opposite,” he added.

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