Societe Generale: S&P 500 to reach new highs early next year before pulling back, with a year-end rebound.

Zhitong App has learned that a strategist from Societe Generale predicts that the S&P 500 index will reach a historical high in early next year, then decline in the middle of the year, and finally rebound to a high at the end of the year.

The team led by Manish Kabra believes that the above-mentioned benchmark index will jump to 4,750 points in the first quarter and then drop to 4,200 points in the middle of the year due to a slight economic recession. The bank stated that this 12% decline will be a buying opportunity as the Federal Reserve will cut interest rates, stimulating a moderate economic recovery and pushing the index back up to 4,750 points in the last three months of next year.

As of the close on Monday, the index rose by 0.74% to 4,547.38 points. The last time the S&P 500 index hit a record high was on January 3, 2022, reaching 4,796 points.

It is understood that Kabra wrote in his annual outlook for the US stock market to clients that the S&P 500 index should be in the "buying low" area as the main indicators of profits continue to improve. However, the journey to the end of the year will be full of twists and turns, mentioning obstacles such as an economic recession, imminent credit sell-off, and ongoing quantitative tightening.

It is worth mentioning that Societe Generale's forecast is similar to other forecasts on Wall Street, that is, the clarity of the US growth prospects next year will support the stock market, but there will be more volatility before that.

Among them, Mike Wilson of Morgan Stanley, one of the most steadfast bears on Wall Street, said that short-term uncertainty will give way to the ultimate profit recovery in 2024. David Kostin of Goldman Sachs predicts that next year's gains will be concentrated in the second half of the year, when the company predicts that the Federal Reserve will cut interest rates for the first time and the US presidential election will be over.

In addition, Kabra also stated that next year is likely to be a "decisive year for the S&P 500 index, and the 'true' bottom of this cycle should be found." Until this happens, if there is no economic recession or Federal Reserve interest rate cut, it is expected that the narrow market breadth will continue to exist.

Societe Generale stated that although the S&P 500 index has risen by more than 17% from the beginning of the year, without 20 "artificial intelligence boom" stocks, the performance of the index this year would be roughly flat.

Overall, the US stock market has rebounded strongly from the crash in 2022, as the misfortunes and pessimism predicted by Wall Street as they entered 2023 did not materialize. If the stock market rises again next year, it will be the fifth rise in the index in six years, with the only exception being the overall decline caused by the Federal Reserve in 2022. Societe Generale's year-end target price for the S&P 500 index in 2024 is slightly lower than the historical high of 4,796 points set in January last year.However, US stock market investors remain cautious, with many flocking to the safe haven of large-cap stocks while avoiding other areas of the market. Despite the S&P 500 index and the tech-heavy Nasdaq 100 stock index heading towards double-digit gains, the contrast is that the Russell 2000 small-cap index and the equal-weighted version of the S&P 500 index have gains of less than 3%. Societe Generale predicts that even a one percentage point interest rate cut will trigger a broader market recovery.

Kabra said, "As the Fed's interest rate cuts become more significant and the yield curve remains firmly in positive territory, the narrow breadth of the stock market may persist until the onset of an economic recession, but these triggering factors are mostly expected to reappear in 2024."