(News Bulletin 247) – Capital Economics believes that the enthusiasm of the American markets for generative AI will not be enough to prevent a decline in the flagship index of Wall Street over the second half of the year. Goldman Sachs is more optimistic.

So far so good for the S&P 500. The index serving as a barometer for Wall Street has risen 13.9% since the start of the year, despite fears of an economic slowdown which is slowly being observed in leading economic indicators.

But, as we have written several times, this progression is only due to a handful of values. By removing Apple, Microsoft, Amazon, Tesla, Meta, Alphabet and above all Nvidia, UBS calculated on June 5 that the performance of the index fell to… 1.6%. It is that the seven values ​​mentioned above recorded, on average, an increase of 72% over 2023, on this date.

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Towards a recession?

Beyond this very particular concentration, and actually not so unusual for the S&P500, is the US index likely to be heading for a much less promising second half of 2023?

This is clearly the prognosis of Capital Economics. In a note published on Tuesday, the London-based think tank anticipates an S&P 500 at around 4,000 points by the end of the year, against around 4,354 currently, which would thus reflect a drop of around 9%.

Capital Economics is however a little less pessimistic than with its previous forecast (3800 points). The think tank admits that the enthusiasm for generative AI, the one at the heart of ChatGPT and which notably propelled Nvidia and Microsoft titles, took it a bit by surprise and could even gain momentum in the medium term.

However, this enthusiasm will not be enough to offset the deterioration in the economy. “We don’t believe growing enthusiasm for AI will be enough to keep the S&P 500 from falling if, as we expect, the U.S. economy slips into a recession later this year,” writes Capital Economics. The think tank considers that the market has not integrated the occurrence of this recession into prices.

Of course, not all observers want to be so pessimistic. Quoted by Bloomberg, Royal Bank of Canada had set its projection at the end of May at 4,250 points at the end of 2023, a very moderate decline, but saw “more upside risks than downside”.

More promising years 2024 and 2025?

Goldman Sachs, also quoted by the American press agency, for its part recently raised its forecast to 4,500 points by the end of the year, ie a very small upside potential. The bank considers that the appreciation of stock market multiples enjoyed by the few stocks mentioned above could spread to other stocks in different sectors.

Conversely, Morgan Stanley wants to be even more cautious than Capital Economics. The US bank confirmed its target at 3,900 points by the end of 2023. “Inflation will go down. It will not be good for equities, because that is where the profits have been generated”, explained to Bloomberg its strategist, Mike Wilson.

Note that beyond 2023, Capital Economics is more optimistic for the American markets, expecting an S&P 500 at 5500 points at the end of 2024 and at 6500 at the end of 2025.