SocGen Sees S&P Returning To Highs, Then Falling Sharply

If you ask SocGen’s Manish Kabra, US stocks may fall 15-20%. But not until they make a run at records and not until next year.

Kabra on Wednesday rolled forward his Q3 S&P target of 4,750 to year-end. “We do not expect the positive momentum in cyclical data to end quickly and think it will be another two quarters before our recession expectations and credit market shocks come into play,” he said.

The figure below gives you a sense of the bank’s forecasted trajectory for the US benchmark.

Kabra expects a “shock” for US shares in the second quarter of next year, driven by falling consumer spending. Ultimately, it’ll be a wash on a 12-month basis in his view, with the index returning to 4,750 by the end of 2024.

The bank’s economists see a recession beginning in Q2, but Kabra noted that given the inflation backdrop, nominal GDP growth will stay supported. “Hence, even though consumers will struggle and discretionary spending will decline, there may not be a negative shock in nominal EPS,” he remarked.

As for valuations, they’re stretched, and Kabra acknowledged the obvious: That makes stocks more sensitive to various kinds of shocks. Still, he wrote,  “cyclical leading indicators are in a less negative zone and support the re-rating of equities.”

As noted above, SocGen expects the S&P to make a run at its all-time highs, “marking a double peak,” before catching down to the recession the bank sees.

Many strategists believe a soft landing is already in the price and that a so-called “no landing” would ultimately be bearish for equities to the extent it necessitates tighter Fed policy or a longer stay at terminal. Kabra doesn’t necessarily agree.

“The no landing scenario is not yet priced in and should be over coming months as recession calls are deleted/delayed,” he wrote, summing things up. “Put another way, we stay bullish near-term, despite the likely jitters in 2024.”