JPMorgan issued its 2024 stock market forecast, and it's the most bearish on Wall Street.
The bank set a 4,200 price target for the S&P 500, representing potential downside of 8%.
"Equities are now richly valued with volatility near the historical low, while geopolitical and political risks remain elevated."
JPMorgan issued its 2024 outlook for the stock market, and it's the most bearish projection yet among Wall Street firms.
The bank, led by their top quant guru Marko Kolanovic and Dubravko Lakos-Bujas, said the S&P 500 will end 2024 at 4,200, representing potential downside of 8% from current levels.
That's in stark contrast to the mostly bullish outlooks issued by other Wall Street banks, with many calling for a return of at least 10% with a 5,000 price target.
"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," JPMorgan said.
The bank's pessimistic forecast isn't a total surprise. Kolanovic shifted his bullish perspective on stocks to a bearish one towards the end of 2022 amid a brutal sell-off, and he's largely stuck to that view throughout 2023, even as the S&P 500 and Nasdaq 100 rallied more than 20% and 50%, respectively.
It's those massive gains that worry Kolanovic and Lakos-Bujas the most, as they both say valuations are elevated amid a period of high interest rates, a tapped-out consumer, and the likelihood that corporate margins are on shaky ground.
"Equities are now richly valued with volatility near the historical low, while geopolitical and political risks remain elevated. We expect lackluster global earnings growth with downside for equities from current levels," they said.
Other stock market concerns for Kolanovic and Lakos-Bujas include equity concentration hitting its highest level since the 1970s, "which is typical ahead of a slowdown."
While the so-called Magnificent Seven mega-cap tech stocks have driven the bulk of the market's gains in 2023, many Wall Street strategists expect the bottom 493 stocks in the S&P 500 to pick up some of the slack in 2024.
But not JPMorgan.
"Many argue the next leg up for global equities will be supported by laggards. However, we see this as a tall order given that underperformers are more economically sensitive with lower and vulnerable margins. After a period of record pricing power, the recent disinflationary trend should become a major headwind for corporate margins amidst sticky and lagging wage trends," the analysts said.
The bank expects S&P 500 companies to see earnings growth of just 2% to 3%, with the index generating earnings per share of $225. That's below the average analyst 2024 estimate of $230, according to data from Bloomberg.
And JPMorgan has a downside bias to its already bearish forecast, as an economic recession remains a real possibility in 2024.
"While it is difficult to pin down the start date and depth of a recession ahead of time, we think it is a live risk for next year even though investors are not pricing in this uncertainty consistently across geographies, styles, and sectors yet," it said.
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