A Gloomy Forecast for U.S. Stocks in 2024


In a recent note, J.P. Morgan equity strategists expressed a pessimistic outlook for U.S. stocks, predicting a challenging year ahead due to a worsening macroeconomic environment. Led by Dubravko Lakos-Bujas, the strategists warned of softening consumer trends and a reversal in investor sentiment combined with rich valuations and elevated political and geopolitical risks.

Concerns Over Valuations and Low Volatility

The equity strategists highlighted that equities are currently “richly valued,” with volatility hovering near historic lows. Additionally, geopolitical and political risks are on the rise, further adding to the concerns. They also anticipate lackluster earnings growth going forward, projecting S&P 500 earnings to grow at only 2% to 3% in 2024. Consequently, they put their S&P 500 price target at 4,200 with a downside bias, which translates to nearly an 8% drop from the index’s Wednesday close above 4,550.

Diverging Views on Earnings Growth

It’s worth noting that analysts surveyed by FactSet offer a more positive outlook, with an average forecast of over 11% earnings growth in 2024. However, the J.P. Morgan strategists argue that current equity valuations are rich, especially considering the mature business cycle, restrictive monetary policy, and various geopolitical risks facing the markets.

Risk Factors and Investment Recommendations

The strategists identified several risk factors contributing to the uncertain outlook, including the shift to a multipolar world order, ongoing geopolitical conflicts, and numerous national elections across 40 countries (including the United States) that could introduce policy volatility.

To navigate this challenging environment, the strategists advised investors to focus on bond proxies and opt for “Quality at a Reasonable Price.” They particularly highlighted utilities as the “sweet spot” in this investment mix.

The Looming Threat of Recession

While the exact start date for a potential recession is difficult to determine, the J.P. Morgan strategists warned that it remains a “live risk” for next year. They noted that despite this uncertainty, investors are not consistently factoring it into their decision-making across different geographies, styles, and sectors.

It seems that the year ahead could be a turbulent one for U.S. stocks, as the macroeconomic landscape worsens and various risk factors weigh on investor sentiment. Only time will reveal whether these predictions hold true.

Check out: What 2024 S&P 500 forecasts really say about the stock market

Also Read: This asset, not stocks or bonds, will be your best bet for 2024, says JP Morgan

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