HSBC equity strategists introduced a 5,000 2024-end target for the S&P 500, although they acknowledge the index could rally further in a soft-landing scenario.
The new target implies an upside potential of about 8% from current levels.
“We believe market expectations are more optimistic heading into 2024 but far from euphoric,” analysts wrote in a note to clients.
HSBC's analysis shows that the S&P 500 has shown an average return of 22% between the first Federal Reserve pause and six months after the first rate cut, provided a recession is averted. Since the Fed pause in July, the S&P 500 has remained relatively flat.
“History suggests we could see another 20%+ return from now through the six months following the first rate cut (which we expect in 3Q 2024),” analysts added.
The S&P 500 closed at 4,643.70 on Tuesday. Hence, the projection is signalling a move above 5,600 in 2024.
The current market conditions align with this cycle, and despite anticipated economic growth slowdown, the U.S. is expected to avoid a recession.
“Equity valuations look justified considering the outsized profitability of US corporates and the end of the Fed hiking cycle,” analysts added.
While upcoming Fed cuts offer significant tailwinds for U.S. equities, factors such as the U.S. election cycle, decelerating economic activity, and earnings growth expectations below consensus contribute to a cautious outlook, the strategists added.