The US economy shows strong resilience as the biggest bear on Wall Street surrenders! Year-end S&P 500 forecast raised to 4150 points.

Smart Finance APP noticed that one of Wall Street's biggest pessimists has retracted his bearish forecast for the S&P 500 index. Greg Boutle, the head of US equities and derivatives strategy at BNP Paribas, had previously predicted that the benchmark index would fall to 3400 points by the end of this year, a decline of 11% from the close of 2022 and 26% from its peak in July. This was the lowest target among surveyed strategists.

However, this week, he capitulated after the market ignored the bearish predictions. Boutle raised his target to 4150 points, expecting a smaller decline in the last four months of this year compared to the 3900 points predicted by Morgan Stanley's Mike Wilson or the 3600-3800 points predicted by Piper Sandler & Co.'s Michael Kantrowitz. The S&P 500 index closed at 4451 points on Thursday.

This revised forecast reflects the market's increasing expectation that the US economy will avoid a recession this year. The market had previously widely expected the US economy to enter a recession after the Federal Reserve's aggressive rate hikes. In contrast, Boutle stated that he expects the stock market to decline as economic growth slows and analysts lower their earnings estimates for companies.

"Our outlook for this year has always been based on the idea of a US economic recession," Boutle said in an interview. "I think we and many people on Wall Street have been surprised by the resilience of US economic data."

He was one of the forecasters caught off guard by the astonishing strength of the economy. The expectation that the US will avoid an economic recession as the Federal Reserve nears the end of its rate hikes has driven a significant increase in stock prices. Despite a slight pullback since early August, the S&P 500 index has still risen nearly 16% in 2023.

According to data, at its peak in July this year, the S&P 500 index exceeded Wall Street's average year-end target by the largest margin since September 2020. This unexpected progress, along with more optimistic prospects, has led to a wave of strategists raising their forecasts for the S&P index.

BNP Paribas maintains its target of 3400 points, even though the index has tested 4600 points, but Boutle said that the maintenance period "exceeded the necessary optimal level."

"It's not because we're not aware of the price volatility that's happening," he said. "We want to make sure that what we're doing is not market watching, but predicting based on logically consistent forecasts."

The company's latest macroeconomic outlook indicates that earnings expectations for 2024 will be revised downward as economic growth slows. However, even if the economy picks up speed again and earnings estimates rise, Boutle said that the bullish outlook has largely been priced in. He said that currently, the basic forecast of Paris Bank is still within an uncertain range.