A 'super bear' could send the stock market to new lows in 2023 if commodity prices soar and drive inflation higher, Stifel says

• A "super-bear" could send the stock market to new lows later this year if inflation soars again, according to Stifel.
• "Major S&P 500 'super-bear' downside in 2023 likely pivots on whether commodity prices again soar," Stifel said.
• Stifel said the S&P 500 could fall 15% to 3,300 in the second half of 2023, representing a new low.

A "super-bear" could take hold of the stock market later this year if commodity prices soar again, according to a Tuesday note from Stifel.

Stifel's chief equity strategist Barry Bannister laid out his 2023 roadmap for the stock market, and it differs from consensus.

Whereas most Wall Street strategists expect the stock market to plunge in the first half of the year as the economy enters a recession, and then to ultimately stage a recovery in the second half of the year, Bannister sees the exact opposite happening.

Bannister expects the S&P 500 to rise to 4,300 in the first half of 2023, representing potential upside of 10% from current levels. Such a rally would be driven by inflation slowing, the Fed pausing its interest rate hikes, and a recession ultimately being avoided.

But it's in the second half of the year that could get increasingly dicey for investors, according to Bannister.

"2023 may be a year of two halves, with the market peaking by summer. Risk of recession rises in the back half of the year. Inflation may turn back up in late 2023, causing the Fed to re-tighten financial conditions," Bannister said.

If that's the case, then a "super-bear" could take over the stock market similar to other tumultuous geopolitical years like 1940 to 1942, 1973 to 1975, and 2000 to 2002, according to the note. Such a scenario would send the S&P 500 down 15% from current levels to a new cycle low of 3,300.

"If 2021 to 2023 echoes similar periods, then we may only be half-way through a two year 'super' bear market," Bannister said.

The bearish outlook from Stifel all hinges on what commodity prices do. Much of the weakness in the stock market last year was initially sparked by soaring energy and agricultural prices related to Russia's war against Ukraine. On the flip side, stocks were able to recover some ground last year after oil prices fell back to levels seen prior to the outbreak of Russia's war.

"All past commodity 'secular bull markets' were 'secular bear markets' for the S&P 500," Bannister explained. "If that reoccurs, we believe commodities would follow a typical 3-stage move higher at a rising cost to US real GDP."

Those three stages include disbelief, "which may be the 2022 decline we have seen for commodity prices," Bannister said. The next stage is belief, followed by greed, which would represent the secular top in commodity prices. The only problem for stock market investors is such a cycle in commodities could take years to play out.

That's why investors should closely monitor commodity prices, inflation, and the Fed's response to gauge whether a "super-bear" market is poised to jolt stock prices.