By Hari Kishan and Indradip Ghosh
BENGALURU, November 22 (Reuters) – Most major global stock indexes are forecast to rise modestly over the coming year, closing 2024 below record highs, while a slim majority of stock market experts polled by Reuters expected their markets to touch new highs within the next six months.
Much will depend on the expectations of interest rates, now central banks are mostly done with a season of aggressive rates since the COVID pandemic to mitigate an explosion of inflation that is not yet completely under control.
Traders and analysts largely assume that the US Federal Reserve will cut interest rates by the middle of next year, an outcome that is far from certain and does not clearly match policy statements from major central bankers.
Those rate cut expectations are partly behind the views of a slim majority of survey respondents, 46 out of 82, who said most key indexes would regain record highs by then.
However, only a few of the top 15 stock indexes were predicted to trade at record highs by the end of 2024, based on a broader Nov. 9-22 poll of more than 120 stock market experts.
“After two straight quarters of recommending cash over stocks and bonds, we now expect equities to start delivering high single-digit returns in 2024 and outperform core fixed income,” noted Ajay Rajadhyaksha, global head of research at Barclays.
“Yes, we expect the economy to grow more slowly next year, in real and nominal terms… But the downside risks to the global economy have diminished significantly. We think stocks will benefit from a fairly benign bottom to this business cycle.”
A strong majority of respondents, 72 out of 85, expected corporate earnings in their local market to increase over the next six months. The remaining 13 said they would decrease.
Despite high interest rates, cooling global inflation, and with it, economic activity, only a slim majority of respondents, 44 out of 80, said value stocks would outperform growth stocks over the next six months.
LOW BONDS
Currently, markets are pricing in a series of 2024 rates, which is sending bond yields lower and stock prices higher.
The 10-year US Treasury note yield breached 5.00% last month for the first time since July 2007 but is not expected to revisit that level according to a separate Reuters poll of alliance strategists who have been proven wrong on the same call for three straight months.
Lower bond yields will likely be required to drive any expected gains in stocks, as they have reached a point where investors have become accustomed to years of poor returns but now represent good value along with safety.
But there’s no guarantee that trend will continue, with US 10-year yields falling around 60 basis points in recent weeks alone.
“Falling bond yields are being interpreted by equity markets as positive in the short term,” said Marko Kolanovic, chief global markets strategist at JP Morgan.
“However, we believe that stocks will soon return to an unattractive risk reward as the Fed remains higher for longer, valuations are rich, earnings expectations remain overly optimistic, pricing power is waning, profit margins are at risk and the slowdown in top-line growth is ready to continue.”
The benchmark S&P 500 index .SPX was foreseen to finish next year at 4,700, only about 3% higher from its Monday close, with a possible US economic slowdown or recession among the biggest risks for the market in 2024.
European equity markets were also expected to exit modest gains in 2024 as optimism global interest rates have peaked is offset by concerns that the economy could fall into recession.
The pan-European benchmark STOXX 600 .STOXX index was expected to rise 4.1% to 475 points by the end of next year, from the end of Monday at 456.26.
Canada’s main stock index was expected to rise less than previously thought over the next year as a slowdown in the global economy weighs on the outlook for corporate earnings.
Among the indexes surveyed Japan Nikkei 225.N225 and BSE index of India.BSESN were expected to continue their strong performance into next year with the Nikkei expected to reach a three-decade high of 35,000 by the end of June next year and the BSE forecast to reach new highs in 2024.
(Reporting by Hari Kishan and Indradip Ghosh; Additional reporting and polling by correspondents in Bengaluru, Buenos Aires, London, Mexico City, Milan, New York, San Francisco, Sao Paulo, Tokyo and Toronto; Editing by Ross Finley and Alex Richardson)
((hari.kishan@thomsonreuters.com;))
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