As investors navigate the stock market, one economist is forecasting that the recent gains will persist until the end of the year, enduring any potential mid-year market correction. Ludovic Subran, the chief economist at German financial services firm Allianz, believes that the anticipated interest rate cuts by central banks may not materialize as soon as investors currently expect. While markets may experience volatility as they adjust to a different rate cut trajectory, Subran suggests that the gains witnessed in late 2023 and early 2024 will likely remain in place by the end of the year.
Contrary to the prevailing sentiment, Subran argues that investors are anticipating a significant and early pivot in interest rates, which may lead to substantial volatility. However, he points out that central banks are signaling a possible mid-year rate pivot that could be smaller than previously thought. This discrepancy in expectations could result in a reevaluation of stock prices, but Subran maintains that the recent gains will persist.
European stocks experienced a notable surge in the final two months of 2023, propelling the regional Stoxx 600 index to an impressive annual gain of 12.7%. This surge demonstrates the market’s resilience, even in the face of seasonal volatility. The solid earnings season reported by companies further contributed to this upward trajectory.
The Record-Breaking S&P 500 and Positive Earnings Season
Meanwhile, the U.S. S&P 500 has been steadily climbing since late October, reaching a historic milestone as it closed above 5,000 for the first time on record. Moreover, companies have reported strong earnings, providing a solid foundation for the market’s upward trend. These positive factors contribute to the belief that stock gains will continue throughout the year.
Factors Influencing Market Volatility and the End-of-Year Expectation
Subran emphasizes the seasonal nature of market corrections and highlights two key factors that could limit the expected pivot in interest rates. Firstly, he cites the growth resilience observed in the U.S., which may mitigate the magnitude of rate cuts. Secondly, he suggests that inflation stickiness in Europe could further diminish the potential impact of rate cuts. Considering these factors, Subran anticipates good equity returns of 5-10% by the end of the year.
While Subran’s prediction offers optimism for investors, it is important to approach market volatility with caution. The anticipated gains should not overshadow the need to carefully monitor economic indicators, central bank announcements, and geopolitical events. By maintaining a balanced perspective and staying informed, investors can navigate the potential volatility and optimize their investment strategies.
Despite expectations for a mid-year market correction, the recent gains in the stock market are projected to endure until the end of the year. By considering the possibility of a less significant rate pivot from central banks and acknowledging the positive factors supporting stock gains, investors can approach the coming months with cautious optimism.