The sizable rally in the U.S. stock market over the past month is likely to fizzle out by the end of next year amid a number of growing economic headwinds, according to JPMorgan Chase.
Dubravko Lakos-Bujas, the chief global equity strategist at JPMorgan, said in a recent analyst note that slowing economic growth, the rapid depletion of household savings and ongoing geopolitical turmoil could trigger a steep decline in the S&P 500 over the course of 2024.
"Absent rapid Fed easing, we expect a more challenging macro backdrop for stocks next year with softening consumer trends at a time when investor positioning and sentiment have mostly reversed," Lakos-Bujas wrote in the note.
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The benchmark index could fall to 4,200 by the end of 2024 — down about 8% from current levels, according to the JPMorgan strategists. It is the most bearish outlook yet among major Wall Street firms. Even Morgan Stanley chief U.S. equity strategist Michael Wilson — a longtime Wall Street bear — sees the S&P 500 ending 2024 around 4,500.
"We expect a more challenging macro backdrop for stocks next year with softening consumer trends at a time when investor positioning and sentiment have mostly reversed," the JPMorgan note said.
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Dwindling household savings, steep borrowing costs that are hovering near the highest level in decades and cooling global demand are to blame for the lackluster projection, Lakos-Bujas wrote.
"Absent significant monetary or fiscal policy supports, we see consensus growth assumptions at this point [as] more hope than realistic," he wrote in the note.
The gloomy forecast comes after a volatile year for the stock market.
All three indexes tumbled in mid-2023 amid fears that the Federal Reserve would raise interest rates higher than previously expected — and hold them at peak levels for longer. But they have quickly recouped those losses, with the S&P 500 rising nearly 11% since it hit bottom at the end of October.
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The benchmark index is up nearly 20% since the start of the year, while the Dow Jones Industrial Average has climbed more than 36%. The tech-heavy Nasdaq Composite, meanwhile, has also jumped about 36%.
