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JPMorgan says S&P 500 will fall next year amid 'challenging macro backdrop'

Not everyone is predicting stocks will rise in 2024.

A new outlook from JPMorgan's (JPM) global equity strategy team projects that the S&P 500 (^GSPC) will finish 2024 at 4,200, a roughly 8% decline from where the benchmark sat on Wednesday.

"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," JPMorgan equity strategists led by Dubravko Lakos-Bujas wrote in the team's 2024 outlook released on Wednesday.

"Equities are now richly valued with volatility near the historical low, while geopolitical and political risks remain elevated."

JPMorgan's call is significantly lower than most other strategists on Wall Street. Even Morgan Stanley's Mike Wilson, a noted bear over the past several years, sees the S&P 500 hitting 4,500 at the end of 2024.

In Wilson's 2024 outlook, he projected earnings would continue to rebound in 2024, with earnings per share popping by 7% from the prior year. JPMorgan isn't as optimistic on earnings, which are normally a key driver of stock performance.

JPMorgan believes S&P 500 earnings will increase 2% to 3% compared to the year prior, resulting in earnings per share of $225 in 2024. The firm notes other targets for higher earnings reflect an economy that's in "early-cycle" or "intra-cycle," a nod to the growing narrative that the Federal Reserve's interest rate hiking campaign will end without recession.

But Lakos-Bujas points out that household savings are falling, borrowing costs for both consumers and corporates have reached a multi-decade high and global demand is cooling amid disinflation.

"For this reason, we are assuming another year of below-trend earnings growth with revenue growth rate sequentially lower, no margin expansion, and lower shareholder payouts," the JPMorgan team wrote.

European Brown bear (Ursus arctos) chasing away gull in the taiga, Karelien, Finland, Scandinavia. (Photo by: Arterra/Universal Images Group via Getty Images)
European Brown bear (Ursus arctos) chasing away gull in the taiga, Karelien, Finland, Scandinavia. (Photo by: Arterra/Universal Images Group via Getty Images) (Arterra via Getty Images)

While many on Wall Street believe earnings may have turned a corner, JPMorgan sides with economists who have highlighted higher costs of credit will eventually slow the US economy in 2024. A new report from the Federal Reserve released on Wednesday indicated the slowdown may already be underway.

JPMorgan also notes recent commentary from management teams during earnings calls depicted a deteriorating outlook for both consumers and the cost of credit. Per JPMorgan's work, the sentiment around the cost of capital hasn't been this low since the Great Financial Crisis.

"Absent significant monetary or fiscal policy supports, we see consensus growth assumptions at this point [as] more hope than realistic," JPMorgan's team wrote.

Graphs from JPMorgan show sentiment on both consumers and credit are shrinking.
Graphs from JPMorgan show sentiment on both consumers and credit are shrinking. (JPMorgan Global Equity Macro Research)

Josh Schafer is a reporter for Yahoo Finance.

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