According to economist Ludovic Subran from Allianz, the latest stock gains are expected to hold until the end of the year and withstand a mid-year market correction, provided that central banks delay the implementation of interest rate cuts. He believes that the gains will persist despite seasonal volatility and that markets may adjust to a different rate cut trajectory from central banks. Investors are currently anticipating a significant and early pivot, but signs now suggest a mid-year rate pivot from central banks that may be smaller than previously thought. This could lead to substantial volatility as people re-rate their expectations, but Subran is confident that the gains from late 2023 and early 2024 will still be present by the end of the year.
European stocks made substantial gains in the final two months of 2023, with the Stoxx 600 index experiencing an annual gain of 12.7%. The U.S. S&P 500 also closed above 5,000 for the first time on record, indicating a strong market performance. Despite some pushback from central bankers on rate cut expectations, companies have reported a solid earnings season in recent weeks, with markets experiencing only a slight rattling of sentiment. Subran anticipates that there may be a seasonal correction, but believes that overall equity returns may be in the range of 5-10%, which he views as favorable for a year of normalization in the economy.
In conclusion, Subran expects that the volatility caused by re-rating due to central banks’ rate cut trajectory could lead to strong equity returns of 5-10% by the end of the year. Despite market fluctuations and seasonal corrections, the gains from late 2023 and early 2024 are expected to remain intact. The solid performance of European and U.S. stocks in 2023, along with a stable earnings season, indicate a positive outlook for the year’s end.