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J.P. Morgan equity strategists issued a grim outlook for U.S. stocks Wednesday, warning that a worsening macroeconomic picture will likely make for a losing year.
“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,” wrote strategists led by Dubravko Lakos-Bujas, in a note.
They noted equities are now “richly valued” with volatility sitting near a historic low, while geopolitical and political risks are elevated. They see “lackluster” earnings growth ahead, with S&P 500 earnings growth seen at 2% to 3% in 2024. They put their S&P 500
SPX
price target at 4,200 “with a downside bias.” That’s nearly 8% below the index’s Wednesday close just above 4,550.
See: What 2024 S&P 500 forecasts really say about the stock market
Analysts surveyed by FactSet have produced an average forecast for earnings growth of more than 11% in 2024.
They said current equity valuations are rich, “especially in light of the aging business cycle, restrictive monetary policy, and geopolitical risks.”
Those geopolitical risks include “an ongoing shift to a multipolar world order, two major wars, and 40 countries holding national elections (including the US) that could add policy volatility.”
The strategists recommended that investors overweight bond proxies and “Quality at a Reasonable Price,” describing utilities as the “sweet spot of this mix.”
As for the threat of recession, it’s difficult to pin down a start date, they said, but described it as a “live risk for next year even though investors are not pricing in this uncertainty consistently across geographies, styles, and sectors yet.”
Earlier: This asset, not stocks or bonds, will be your best bet for 2024, says JP Morgan
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