The recent rally in global stocks may have limited further upside, according to a Reuters poll of equity strategists. The rally, which began in late 2023, has propelled many indices close to lifetime highs and, in some cases, set new records. The surge was initially fueled by expectations that the U.S. Federal Reserve would begin cutting rates as early as the next month. While these rate cut expectations have subsided, indexes have continued to climb, driven by strong earnings and robust performances in the technology sector, even as bonds retreated.
The poll, conducted from February 9 to 22 with around 150 equity analysts, revealed that all 15 major stock bourses surveyed were expected to see gains this year. However, only three were anticipated to rise by more than 10%, in contrast to 2023 when only two failed to achieve double-digit percentage gains.
JPMorgan’s global markets strategists suggested in a recent note that investors should consider the possibility of rates staying higher for an extended period, and the Fed may need to tighten financial conditions. The analysts highlighted the need for investors to be open-minded about different scenarios in the evolving market environment.
Despite the shift in rate expectations, the more than 20% rally in U.S. stocks since October has not seen a correction, with volatility remaining unusually low, according to analysts. They observed a significant increase in investor positioning over the past few months, which could pose a growing headwind for the market.
While the prospect of higher-for-longer interest rates may limit gains, strong corporate earnings are expected to provide support for stocks, despite their high valuations. An overwhelming majority of analysts, 71 out of 83, predicted that corporate earnings would increase over the next six months.
Regarding the likelihood of a correction in the next three months, analysts were almost evenly split. Out of 88 analysts across 12 markets surveyed, 45 believed a correction was unlikely, while the remaining 43 considered it likely.
Among the 15 bourses surveyed, U.S. and India indices have consistently outperformed analyst expectations since at least 2010.
India’s benchmark BSE index is forecasted to add 8% this year, building on 2023’s near 19% surge, supported by a strong economy. In contrast, the S&P 500 is expected to gain only 2.4%, a fraction of last year’s 24% rally.
Neeraj Chadawar, head of quantitative equity research at Axis Securities, emphasized India’s status as a standout economy among emerging markets, projecting continued growth momentum in 2024 amidst global economic volatility.
Japan’s Nikkei index, which has soared nearly 50% since the end of 2022 to reach a record high, is anticipated to maintain its gains and trade around 39,000 by year-end.
The pan-European STOXX 600, bolstered by technology stocks, is forecasted to climb another 3% by year-end after hitting an all-time high.
Amundi strategists anticipate sluggish growth in Europe, with mild contraction in U.S. activity potentially affecting earnings, though they don’t foresee an earnings recession.
Britain’s FTSE, projected to rise approximately 3.0% to reach 7,900 by year-end, is the only index in the poll that analysts downgraded their outlook for compared to a previous poll where it was anticipated to touch 8,000.