The S&P 500 could tumble 20% this spring — then surge to a record high by the end of 2024
In the upcoming months, brace yourselves for a rollercoaster ride in the financial markets. According to Marko Papic, partner and chief strategist at Clocktower Group, the S&P 500 is poised to take a 20% dip this spring as a recession looms. However, don't let the downturn dampen your spirits, as Papic predicts a remarkable recovery, propelling the index to an all-time high by the close of 2024.
FillDuring a recent webcast by Rosenberg Research, Papic shared his insights on the market's trajectory. He anticipates the impending slump to be followed by a vigorous comeback, fueled by rate cuts orchestrated by the Federal Reserve to stimulate economic growth. Papic's accurate predictions have earned him a spot on Business Insider's prestigious "Oracles of Wall Street 2023" list. in some text
"My perspective for 2024 envisions a significant equity drawdown in the early months, but fear not," Papic reassured. He believes that the Federal Reserve will embark on an extraordinary and perhaps excessive easing journey, far beyond what is warranted by the severity of the recession. This, he argues, will catapult the S&P 500 to levels surpassing 5,000 by the year's end.
Reflecting on the recent economic landscape, Papic acknowledged the surge in inflation to a 40-year high of over 9% last year. This prompted the Federal Reserve to raise interest rates from near-zero to over 5% within 18 months. The move aimed to encourage saving, curb spending, and address inflation but also carried the risk of triggering a recession and escalating unemployment.
Uncertainty looms over whether the Fed's battle against inflation will result in a hard landing, a soft landing, or no landing at all. Despite inflation easing to below 4% in recent months, Papic remains cautious. Last week, optimism emerged as the central bank hinted that interest rates might have peaked and projected three rate cuts in the coming year.
Papic's current stance leans towards a growth slowdown in the U.S., with concerns about the lack of fiscal stimulus from House Republicans and a potential pullback in corporate investments. He emphasized that the absence of fiscal stimulus is so profound that even a catastrophic event like Godzilla attacking the U.S. shores would not trigger it.
In an intriguing twist, Papic suggested that the Fed might aggressively cut rates in the coming year, not just for economic reasons but also to influence the political landscape. He theorized that such cuts could be a strategic move to support President Biden's chances of re-election, ensuring price stability. Conversely, he warned that overzealous rate cuts for political motives could reignite the economy in unexpected ways, should a recession occur.
Despite his cautious outlook, Papic finds solace in the financial health of U.S. consumers, whom he deems the driving force of the economy. According to him, many households have been accumulating cash reserves, poised to make strategic real estate investments once prices dip during a recession. So, as we navigate the twists and turns of the economic landscape, it appears that opportunities may arise even in the face of uncertainty.