Economist Forecasts Stock Gains Despite Potential Market Correction Delay

According to Ludovic Subran, the chief economist at Allianz, the recent stock gains are expected to persist through the year and withstand a possible mid-year market correction, if central banks delay implementing interest rate cuts. Investors may witness continued gains aligned with recent rallies, despite potential seasonal volatility, as markets adjust to a different trajectory for rate cuts by central banks. Subran pointed out that investors are anticipating a significant and early shift in rate cuts, although there are indications suggesting a smaller mid-year rate pivot from central banks than previously anticipated. He also emphasized that the gains observed in the latter part of 2023 and early 2024 are projected to endure until the end of the year.

Market Performance

The European stock market surged in the final two months of 2023, propelling the regional Stoxx 600 index to an annual gain of 12.7%, as per LSEG data. Meanwhile, the U.S. S&P 500 has been on an upward trajectory since late October, achieving a record-breaking close above 5,000 for the first time on Friday. Recent weeks have seen companies reporting solid earnings, with only a minor impact on market sentiment as some central bankers push back on rate cut expectations, especially in Europe.

Market Outlook

Subran highlighted the potential for seasonal trends, predicting a possible correction followed by a realization that the anticipated pivot may not be as substantial, given the U.S.'s growth resilience and Europe's persistent inflation. However, he remains optimistic that by the end of the year, there could be a substantial 5-10% equity return, which is favorable considering the normalization expected in the overall economy.