- The S&P 500 will fall to three,200 factors earlier than it hits a low in Q2 subsequent 12 months, UBS has forecast.
- US shares will not recuperate till the Federal Reserve begins chopping rates of interest, the financial institution mentioned.
- “The velocity of that pivot will drive each asset class subsequent 12 months,” UBS strategists mentioned Monday.
The S&P 500 US inventory index might fall one other 16%, earlier than bottoming out in 9 months’ time as soon as the Federal Reserve switches away from mountain climbing rates of interest, UBS has forecast.
The Swiss financial institution’s strategists laid out this state of affairs in a Monday notice: “Weak progress and earnings drag the market decrease earlier than a fall in charges helps it backside at 3,200 in Q2 ’23 and lifts it to three,900 by finish ’23.”
The S&P 500 must fall 15.9% from its Monday shut at 3,806 to achieve that low stage.
The benchmark index has already slumped 20.1% year-to-date, weighed down by the Fed’s tightening marketing campaign, recession fears, and poor third-quarter earnings performances by Massive Techs like Amazon and Fb father or mother Meta Platforms.
UBS expects a slowdown in financial progress to hold on dragging shares down till the second quarter. It additionally projected year-on-year world GDP will rise simply 2.1% in 2023 — which might be the third-lowest growth previously three a long time.
“Our forecast approaches one thing akin to a ‘world recession’,” a UBS group led by chief economist Arend Kapteyn mentioned in a notice to purchasers.
“For the US, we now count on close to zero progress in each 2023 and 2024, and a recession to start out in 2023,” they added.
That financial hunch would possible result in a interval of disinflation, they mentioned. Given the US central financial institution has elevated rates of interest quickly to attempt to tame inflation operating at 40-year highs, that might give policymakers scope to modify to chopping charges to stimulate financial progress.
“Mixed with inflation falling quickly, the Fed would reduce the federal funds charge right down to 1.25% by early 2024,” the strategists mentioned. The speed is presently at 3.75%.
“The velocity of that pivot will drive each asset class subsequent 12 months,” they added.
Expectations of a Fed pivot might raise the S&P 500 to three,900 factors — a 2.4% acquire from its shut Monday – by the top of 2023, based on UBS.
The financial institution additionally predicted that future charge cuts will result in 10-year US Treasury yields slipping 155 foundation factors to 2.65% and the greenback slowly falling the ten most heavily-traded currencies in addition to gold.
Learn extra: Brace for the Fed to steer the US into recession, Nouriel Roubini has warned. Here is the place ‘Dr Doom’, Sam Zell, and three different high specialists assume the economic system will undergo.
