The stock market has experienced significant gains in recent months, prompting investors to debate whether these gains can be sustained until the end of the year. According to Ludovic Subran, the chief economist at Allianz, if central banks implement interest rate cuts later than expected, the current stock gains will prevail. In this article, we will examine Subran’s perspective and the factors that could determine the future trajectory of the stock market.
Investors are currently anticipating a substantial and early rate cut pivot by central banks. However, Subran suggests that this may not be the case. Instead, central banks may choose to implement rate cuts in a mid-year pivot, albeit on a smaller scale than previously anticipated. This contrasting rate cut trajectory could result in significant volatility as markets readjust. Nevertheless, Subran maintains that the gains witnessed at the end of 2023 and the beginning of 2024 will still be present by the end of this year.
Evidence of Recent Gains
The European stock market experienced remarkable growth in the last two months of 2023, with the regional Stoxx 600 index achieving a yearly gain of 12.7%. Similarly, the U.S. S&P 500 has been steadily increasing since late October and recently closed above 5,000 for the first time in history. These positive trends suggest that the stock market is currently performing well.
Although Subran predicts a potential mid-year rate pivot, he acknowledges that central bankers may push back on rate cut expectations, particularly in Europe. This resistance from central banks could contribute to slight fluctuations in market sentiment. However, Subran believes that the resilience of the U.S. economy and the persistence of inflation in Europe will ultimately limit the magnitude of any correction.
Subran emphasizes the importance of considering seasonality in stock market trends. He expects that the volatility caused by the rate cut re-pricing and potential correction will be short-lived. This is due to factors such as the U.S. economy’s growth resilience and the persistence of inflation in Europe. Consequently, Subran anticipates an overall positive outlook for equity returns by the end of the year, with potential gains ranging from 5-10%.
Ludovic Subran suggests that the stock market’s recent gains will endure until the end of the year, even in the face of a mid-year market correction. This expectation is predicated on the assumption that central banks will implement interest rate cuts later than currently anticipated. While volatility may ensue as markets readjust, Subran believes that the gains witnessed in late 2023 and early 2024 will persist. As investors navigate the uncertainties of the stock market, it is important to consider the various factors that could impact its trajectory.
Leave a Reply