Market: Should we expect a dive on Wall Street in the second half of the year?

(BFM Bourse) – Capital Economics believes US markets’ enthusiasm for generative AI will not be enough to prevent a fall in Wall Street’s flagship index during the second half of the year. Goldman Sachs is more optimistic.

So far so good for the S&P 500. The index, which acts as a barometer for Wall Street, is up 13.9% since the start of the year, despite fears of an economic slowdown slowly being observed in leading economic indicators.

But, as we have written several times, this progression is due to only a handful of values. Stripping out Apple, Microsoft, Amazon, Tesla, Meta, Alphabet and, above all, Nvidia, UBS calculated on June 5 that the index’s performance fell to… 1.6%. It is that the seven values ​​mentioned above recorded an average increase of 72% compared to 2023 on this date.

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Heading for a recession?

Beyond this very particular concentration, and actually not that unusual for the S&P500, is it likely that the US index is headed for a much less promising second half of 2023?

This is clearly the forecast of Capital Economics. In a note published on Tuesday, the London-based think tank expects the S&P 500 to be around 4,000 points by the end of the year, against around 4,354 currently, which would thus reflect a decline of around 9%.

However, Capital Economics is slightly less pessimistic than with its previous forecast (3800 points). The think tank admits that enthusiasm for generative AI, the one at the heart of ChatGPT and which notably powered Nvidia and Microsoft titles, surprised it a bit and could even pick up in the medium term.

However, this enthusiasm will not be enough to offset the deterioration of the economy. “We don’t think growing enthusiasm for artificial intelligence will be enough to keep the S&P 500 from falling if the US economy slips into recession later this year, as we expect,” writes Capital Economics. The think tank estimates that the market has not integrated the occurrence of this recession into prices.

Of course, not all observers want to be so pessimistic. Cited by Bloomberg, the Royal Bank of Canada had set its projection at the end of May at 4,250 points by the end of 2023, a very moderate decline, but saw “more upside risks than downside”.

More promising years 2024 and 2025?

Goldman Sachs, also quoted by the American press agency, for its part, recently raised its forecast to 4,500 points by the end of the year, so very little upside potential. The bank believes that the appreciation of stock market multiples, like the few stocks mentioned above, can spread to other stocks in different sectors.

Conversely, Morgan Stanley wants to be even more cautious than Capital Economics. The US bank confirmed its target of 3,900 points by the end of 2023. “Inflation will come down. It won’t be good for stocks because that’s where the profits have been generated,” its strategist, Mike Wilson, told Bloomberg.

Note that after 2023, Capital Economics is more optimistic for the US markets, expecting an S&P 500 of 5500 points at the end of 2024 and at 6500 at the end of 2025.

Julien Marion – ©2023 BFM Bourse

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