Despite macro risks

In the upcoming year, market forecasts suggest a cautiously optimistic outlook for risk assets, specifically the S&P 500, signaling a potential ascent to historic peaks. Although 2023 commenced with unfavorable predictions for equity markets, the year has defied expectations, presenting resilient positive performance across major indexes.

Looking ahead, projections hint at a continuation of the bullish trend, potentially culminating in record-breaking highs for stock indices. However, the realization of this scenario largely depends on averting a substantial economic downturn, a concern particularly evident in Europe and China, where the economic trajectory remains precarious.

Interpreting macro data for market predictions

Eurozone indicators starkly signal an imminent recession, whereas the latest US GDP data exhibits a significant quarter-on-quarter growth of 4.9%, dispelling recessionary fears. However, deeper analysis of economic growth indicators, particularly industrial production and manufacturing PMI, presents a less sanguine narrative. These metrics have persistently hovered below the recession threshold for several consecutive months. Meanwhile China’s economic woes continue even as the government is continuing capital infusion.

US economic indicators and rate-cut expectations

The US economic landscape, coupled with the persistently inverted yield curve of US Treasury securities, sustains concerns of a looming recession. Consequently, market focus sharpens on forthcoming PCE and retail sales numbers. Continued robust GDP dynamics along with sustained disinflation could reinforce the US stock market’s upward trajectory.

Market response to potential rate cuts

Market sentiment hints at an imminent Fed pivot, anticipating up to four rate cuts beginning in May next year. This anticipation stems from evolving economic conditions, primarily progressive disinflation or a substantial economic slowdown. Optimism prevails if inflation targets are reached while evading a severe recession. Wall Street braces for these rate cuts, marking a notable shift from the Federal Reserve’s prolonged anti-inflation campaign.

Nearing historic highs

The S&P 500’s bullish trend persists, approaching a pivotal resistance level around 4600 points, matching this year’s high. Prospects suggest a breakthrough in this zone, propelling growth toward historical highs at 4800 points. Historical data underscores December’s favorable performance in pre-election years, bolstering market bulls’ outlook.

Big-tech’s influence on US stocks in 2024

The US stock market’s dominance in 2023 owes much to big-tech shares. Their robust performance significantly outpaces other asset classes, propelling US equities’ leadership this year. Projections for 2024 emphasize continued outperformance by mega-cap tech companies, primarily driven by rising sales and superior net margins.

Overall, the risk asset landscape is optimistic, supported by seasonal trends, but volatility remains a concern as investors navigate the year-end amidst potential market fluctuations.

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