As equities continue to rally, several major financial institutions are now forecasting a significant slowdown in global markets. The S&P 500 index is up more than 10% since its lows last October. In Europe, the STOXX 600 rose by more than 15% over the same period. But some investment banks say those gains are now in jeopardy as they fear the lagged effects of monetary tightening will weigh on earnings and squeeze profit margins this year. .STOXX 1Y line Here are five of the biggest calls made so far: Bank of America: STOXX 600 down 20% in Q2 The Bank of Wall Street believes that the current strength in the stock market is not sustainable and that ‘there could be a bear market by the second quarter of this year. We expect Eurozone and US growth to weaken to recessionary levels in response to severe monetary tightening. Equities are far from pricing in this scenario, having been supported by recent strength in hard data as companies reduced their order books. If growth weakens, in line with our projections, as the outperformance of strong data versus new orders fades and underlying demand continues to weaken in response to monetary tightening, this would be consistent with a Stoxx 600 down about 20% to 365. – Jan 20 GMO, S&P 500 down 20% to 3,200 in December. GMO chairman Jeremy Grantham, who predicted a bear market last year, said stock prices are currently supported by the “positive influence” of the so-called presidential cycle. However, the notable investor expects the S&P 500 to fall to 3,200 “and spend at least some time below this year or next.” The bursting of the ultimate bubble of overconfidence is behind us and stocks are now cheaper. But due to the length of the list of significant negatives, I think continued economic and financial problems are likely. I believe they could easily turn out to be unexpectedly disastrous. So I believe that a continued market decline of at least substantial proportions, while not the virtual certainty that it was a year ago, is far more likely than not. – January 24 UBS: STOXX 600 down 8% to 410 in December. The Swiss bank also sees potential downside of 8% to 410 (SXXP) due to lower earnings/margin forecasts. We believe the market is significantly undervaluing downside risks. With returns and global growth risks set to remain elevated for most of this year, we do not expect a significant rebound in valuations beyond what we have already seen this year. – January 11 JP Morgan: STOXX 600 up 3% to 465 in December. The US investment bank has a more mixed outlook. JPMorgan strategists said the current market rally will likely start to fade in the first quarter of 2021 as the catalysts that have driven stocks higher since October – bond yields, inflation and the U.S. dollar – have all been taken into account in the market. JPMorgan expects the market to remain stable through the end of the year. We believe that the current market rally will start to fade in the first quarter. The stock market is behaving like we’re in an early cycle rally, but the Fed hasn’t even wrapped up its hike yet. With January still providing good seasons and current investor positioning far from heavy, with both supporting equities for the time being, we believe that potential gains should be used over the coming weeks to reduce the downturn. ‘exposure. – January 23 Barclays: STOXX 600 up 6% to 475 in December. British investment bank Barclays is bullish on the European stock index. He expects the STOXX Europe 600 to end the year up 6% from current levels. He points to data that shows hedge funds were reducing their net short positions in equities, which removes downward pressure, to back up his point. Short-term interest has halved from fourth-quarter highs for EU stocks, but remains high in the US [hedge funds] have become downright long stocks and their exposure is near the highs of 12 million, but still below average. Long-short funds have also reduced short positions, but their net exposure also remains low. Buying of European equity ETFs by US investors has also picked up, but overall positioning on the region remains much more cautious than the positive consensus sentiment on the region suggests. – January 25
Some Wall Street analysts are predicting a market decline. Here’s when it could happen
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