The stock market's 'no recession' relief rally is over. Expect flat markets for the rest of the year.

• The "no recession relief rally" has ended for the stock market, according to Stifel's Barry Bannister.
• Bannister said investors should expect a flat market between now and the end of the year.
• "After a trading range in 2H23, we see signs of a recession, however mild, is likely is ~1Q24," Bannister said.

The strong stock market rally seen in the first half of the year is over, and investors should prepare for muted returns between now and the end of 2023.

That's according to Stifel chief equity strategist Barry Bannister, who told clients in a Thursday note that the "no recession relief rally" has ended, and that there is still risk of a recession hitting the US economy in the first-quarter of 2024.

"The lagged effect of past policy tightening, persistent Fed vigilance... the risk of a moderate oil shock and movement closer to full resource utilization in the economy raise the risk of a classical, albeit mild US recession in early 2024," Bannister said.

Part of Bannister's view is based on the Federal Reserve's committement to getting inflation back down to its long-term target of 2%, even as it is currently trending closer to 3%.

"The old inflation 'ceiling' is now the new inflation 'floor," Bannister said, suggesting that it will take a lot more work for inflation to drop from about 3% to about 2%.

The July CPI report likely reinforced Bannister's view, as it showed prices rising 0.2% month-over-month and prices up about 3.2% from a year-ago, higher than 3.0% notched in June.

The S&P 500 is up about 17% year-to-date, but has declined by about 3% since the start of August. Bannister expects the S&P 500 to finish the year at 4,400, suggesting potential downside of about 2% from current levels.

Sideways returns for the stock market between now and the end of the year, as Bannister expects, wouldn't be out of the ordinary based on seasonality data.

According to data from Bank of America, stock market returns are typically muted between July and December in the third year of the Presidential Cycle, which reference a four-year stock market cycle that tracks with the four-year term of the US President.

The S&P 500 "has entered a less robust period within the Presidential Cycle. Average and median monthly returns show that the S&P 500 is solid in Year 3 from January to July, and then lackluster from August to November prior to a bullish December," BofA's Stephen Suttmeier said in a Tuesday note.

And Bannister doesn't seem to be overly optimistic about the stock market heading into 2024, based on his current earnings estimates. Bannister expects the S&P 500 to print 2023 earnings per share of $205, with earnings slightly improving to just $209 per share in 2024. That's well below consensus estimates of the S&P 500 generating $226 in earnings per share next year.

"If our flattish EPS view is right the S&P 500 may be flat," Bannister said.