(News Bulletin 247) – The economy is expected to slow down this year, while central banks will reduce their rates. Wall Street still appears to have potential. The debate is, however, open for euro zone equities.

If the stock markets experienced a year of ups and downs in 2023, the vintage was ultimately good. The CAC 40 gained 16.52%, the Stoxx Europe 600 increased by 12.7% and the S&P 500

took 24.1%.

The year was not easy, particularly in March, when the bankruptcy of the Californian bank SVB led to a movement of mistrust among all regional American establishments, thereby weakening the entire sector. This was fatal to Europe’s weak link, the bank Credit Suisse, which had to face violent withdrawals of deposits. To preserve banking stability and avoid having to come directly to its aid, the Swiss authorities pushed Credit Suisse into the somewhat annoyed arms of UBS, at the cost of a few violations of the rules of capitalism. In November, the war between Israel and Hamas, although it did not trigger panic on the markets, added a significant factor of uncertainty, particularly on oil prices.

In terms of sectoral trends, two movements have driven values: the craze for generative artificial intelligence, with the gigantic success of ChatGPT, illustrated on the stock market by the jump in Nvidia’s shares and results, and the rise anti-obesity drugs, which allowed the Danish Novo Nordisk to become the first European capitalization.

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More than 150 central bank rate cuts in 2024

At the twilight of 2023, what can we now expect for the year to come? One thing seems certain: a lot will depend this year on the trajectory of inflation and the monetary policies of the major central banks.

In absolute terms, the market does not seem so far from the situation in which it found itself in the summer of 2023: investors seem to be banking on the famous “Goldilocks” scenario which, to simplify, would mean that inflation would decline, the economy would slowly slow down, and the major central banks would make significant rate cuts.

“Given current market prices, investors continue to anticipate a soft landing and seem to ignore the increased risk of recession,” observes HSBC Asset Management with an eyebrow.

In terms of key rate forecasts, Barclays bank expects, for example, that the European Central Bank (ECB) will begin to reduce its rates from next April, by 25 points. base (0.25%) before repeating this movement at each meeting until January 2025, when the ECB’s key rate would reach 2.25% compared to 4.5% currently. For the American Federal Reserve (Fed), investors are counting on rate cuts of between 125 and 150 basis points over the whole of 2024, according to the CME Group’s FedWatch tool.

More broadly, Bank of America estimates that central banks will make a total of no less than 152 rate cuts in 2024, a figure which would exceed rate increases for the first time since 2020.

Beware of too much optimism

Several market intermediaries, however, warn against excessive optimism. “Our outlook remains cautious for 2024 as we believe that the market is currently pricing in an unrealistic ‘Goldilocks’ scenario,” says DNB Asset Management. JP Morgan Asset Management also doubts the soft landing scenario. “It is too early for central banks to declare victory in the face of inflation and it is unlikely that rate cuts in 2024 will be able to prevent a deterioration in the economy,” write its strategists. “2024 could be much more chaotic than wonderful”, warned on News Bulletin 247 on December 18 Céline Piquemal-Prade, general director of Piquemal Houghton Investments, who pointed to “uncertainties on the inflation side” while valuations “do not indicate no uncertainty,” according to her.

On a purely macroeconomic level, a slowdown in activity is looming. “The strength of the American economy in 2023 is likely to give way, in 2024, to weaker, but nonetheless still positive, growth. For its part, European growth is expected to remain sluggish. China, for its part, is expected to experience a ‘new normal’, marked by lower growth which could however be of better quality”, anticipates UBS.

The Swiss bank calls not to underestimate political and geopolitical risks, while the market faces a risk of flaring up two conflicts (the war in Ukraine and the conflict between Israel and Hamas) and the United States will organize a new presidential election under high tension at the end of the year. “Heavily contested elections will take place in the United States and the United Kingdom, while other elections, such as in Taiwan, will also be the center of attention due to tensions with China,” recalls JP Morgan Asset Management . According to its strategists, 40 polls will take place in 2024. “The outcome of the US presidential election scheduled for November 5 will have an impact on the global economy due to the differences of views between Republicans and Democrats on a number of topics, notably the war in Ukraine and climate action,” they also explain.

American stocks still interesting

In this still very uncertain context (like every year, one might be tempted to write), what can we expect in 2024 for the major European and American indices? JPMorgan Private Bank believes stocks offer “potential for significant gains in 2024” as large-cap earnings growth is expected to accelerate and “could propel stock markets over the next year.”

“We believe the U.S. corporate sector has already experienced an earnings recession, with eight of the eleven major S&P 500 sectors reporting negative earnings growth for at least two consecutive quarters over the past two These companies have become leaner and more resilient in the face of the potential challenges that 2024 could present,” explains Christopher Baggini, global head of equity strategies at JP Morgan Private Bank.

For its part, Deutsche Bank is counting on an S&P 500 at 5,100 points at the end of 2024, compared to 4,765 points currently, or a potential of 7%, thanks in particular to “robust” growth in earnings per share of S&P 500 residents. UBS is at 4,700, counting on an absence of recession in the United States. More broadly, according to a survey conducted by Bloomberg in the middle of the month, the average forecast of 518 market intermediaries stood at 4,808 points for next year, which would represent a record, even if the progression was limited.

A debate for European markets

For European equity markets, the debates seem very open for next year. UBS is cautious, stressing that Europe risks falling into recession and that corporate margins could suffer.

“We believe that most sectors in Europe are exposed to a weakening of demand, a decline in pricing power or constant pressure on costs,” notes the Swiss bank, which expects, in forecasts revealed in November, on a Euro Stoxx 600 (an index bringing together large capitalizations in the euro zone) to 410 at the end of the year, against 479 currently.

But Deutsche Bank is more optimistic, with a forecast of 510. The German bank believes that the worst is already over. “European growth data is already at levels seen in previous recessions, earnings growth forecasts have been cut to the lowest of any stock exchange and valuations are moving to depths worthy of the European financial crisis “, develops the German establishment.

Quoted by Bloomberg, Citi shares this target of 510 points, also judges that the worst has already been integrated into prices, and considers that investors are too pessimistic about the outlook for corporate results for the euro zone. Goldman Sachs for its part sees the Euro Stoxx 600 at 500 points and expects an increase in profits of companies in the euro zone of 7%, reports Reuters.

According to a survey carried out among 16 establishments by Bloomberg, strategists see on average the Stoxx 600 ending the year 2024 at 474 points but with very significant differences.

A sign that it is difficult to establish forecasts is that members of two different units of the same bank do not agree with each other. Bank of America strategists estimate that the Euro Stoxx 600 could fall to 390 in mid-2024 before rising to 420 at the end of 2024, as European companies will suffer from the weakening global economy. Conversely, analysts (and not strategists) at Bank of America judge that the profits of European companies will increase by 8% and that the Eurozone stocks in their coverage will increase by around 15%, reports Bloomberg.

Note that research offices seem optimistic for the London Stock Exchange, which experienced a blank year on the stock market in 2023 or almost, with the FTSE 100 gaining barely 3.8% in 2023. Analysts surveyed by Bloomberg see , on average, the main index of the London market ends 2024 around 7,960 points compared to 7,733 points currently.