One economist said if the central bank cuts interest rates later than investors are currently pricing in, recent stock gains could be sustained through the end of the year and weather a mid-year market correction.
Ludovic Soubran, chief economist at German financial services firm Allianz, said that although there are seasonal fluctuations, profits have declined in recent years as markets may reprice to adjust to a different trajectory of central bank interest rate cuts. “It will remain at the same level as the rise,” he told CNBC’s “Squawk Box Europe.” Monday.
Sablan said that despite current signs pointing to a mid-year interest rate pivot by the central bank, investors are now “expecting a significant pivot, and also expecting a very early pivot.” He said the realization could be smaller than previously thought.
“This means there’s going to be quite a bit of volatility going forward as people reassess, but I also think that what we saw as an uptick in late 2023 and early 2024 will remain by the end of the year. “That year,” he continued.
European stocks tumbled through the last two months of 2023, with the region’s Stoxx 600 index up 12.7% annually, according to LSEG data. Meanwhile, the U.S. S&P 500 index has been trending upward since late October and closed above 5,000 on Friday for the first time on record.
See chart…
STOXX 600 index.
In recent weeks, companies have reported a strong earnings season and market sentiment has been volatile, with some central bankers backing down on expectations for rate cuts, particularly in Europe.
“I think it’s going to be very seasonal. So there’s probably going to be a correction…I think investors will see a pivot that won’t be as big because of the resilience of U.S. growth, or maybe because of inflation.”Europe So it’s sticky,” Sablan told CNBC.
“But by the end of the year, I think we’ll have a pretty good stock return of 5% to 10%. And that’s very good for a year when everything else in the economy normalizes.”
