The Outlook for Stock Gains: Will They Hold Until the End of the Year?

As global markets continue to experience volatility, investors are left wondering whether the recent stock gains will last until the end of the year. According to Ludovic Subran, chief economist at German financial services firm Allianz, the gains are likely to hold, despite a potential mid-year market correction. However, Subran warns that investors may need to re-price their expectations as central banks implement interest rate cuts later than anticipated.

Investors are currently anticipating a significant and early pivot by central banks, leading to a surge in market volatility. However, Subran suggests that central banks may opt for a mid-year rate pivot, which could be smaller in magnitude than previously expected. This discrepancy between investor expectations and central bank actions could result in significant market re-pricing. Nevertheless, Subran believes that the gains witnessed in late 2023 and early 2024 will ultimately be sustained by the end of the year.

European stocks experienced significant growth in the final two months of 2023, culminating in an annual gain of 12.7% for the regional Stoxx 600 index. Similarly, the U.S. S&P 500 has been on a steady ascent since late October, recently surpassing the milestone of closing above 5,000 for the first time in history. This positive performance can be attributed to companies reporting solid earnings during the recent earnings season.

Subran expects the stock market’s performance to be strongly influenced by seasonal factors. While a correction may occur due to growth resilience in the U.S. or inflation stickiness in Europe, Subran remains optimistic about the overall equity returns by the end of the year. He predicts a range of 5-10% returns, indicating that investors should not be overly concerned about short-term fluctuations.

The outlook for stock gains looks promising, despite the potential for a mid-year market correction. The timing and magnitude of central bank rate cuts will likely lead to market volatility and re-pricing. However, based on recent performance and solid earnings, Ludovic Subran believes that the gains witnessed in late 2023 and early 2024 will ultimately be sustained until the end of the year. Investors should remain cautiously optimistic, keeping in mind the potential for seasonal fluctuations and the long-term growth potential of equities.