Interactive Investor

Global outlook for 2024: updated forecasts for S&P and UK

With almost half the year already gone, analysts at Deutsche Bank have run the numbers again and made changes to their predictions. Here’s what they expect to happen in the months ahead.

4th June 2024 15:38

by Graeme Evans from interactive investor

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The world and the numbers 2024

A top-of-the range stance on the S&P 500 index is among the calls of a leading bank after its mid-term review of 2024 highlighted an increasingly positive global outlook.

Deutsche Bank’s year-end target for the blue-chip benchmark stands at 5,500, up 4% on today’s level as it regards the current earnings cycle as having “plenty of legs”.

It added this week: “While all the growth may not materialise this year, we see market confidence in a continued recovery rising by year end, supporting equity multiples.”

This position compares with its more cautious stance at the start of 2024, when valuations were regarded as relatively full. Its forecast range for S&P 500 earnings then stood at $250-$271, with a spread of 5,100-5,500 in relation to the benchmark’s year-end position.

A strong first-quarter earnings season and upgraded economics forecasts subsequently prompted the bank to lift its base case scenario from $250 to $258, representing a 13% rise versus 2023.

Should macroeconomic growth remain robustly above trend as it has done for the past seven quarters, the bank now sees 19% growth to the top end of its range at $271.

It warns that investors should be ready for sharp but short-lived sell-offs due to geopolitical factors, with an indecisive US presidential election result also a real risk.

Despite the robust forecast for the S&P 500 and continued hopes of a soft landing for the US economy, the bank’s tactical preference is for Europe.

This comes after lifting its euro area GDP forecast by half a per cent to 0.9%, although this looks to be more cyclical than structural as the 2025 estimate is unchanged at 1.5%.

In China, the bank’s economists upgraded their 2024 GDP forecast to 5.2% in April. This is supported by export growth and accelerating fiscal spending, but with growth likely to slow to 4.5% in 2025 as the housing market faces price pressure from an excess supply of homes.

Japan’s performance should stay above trend for the next couple of years, leading the bank to be more hawkish on the outlook for interest rates than the wider market.

Overall, the bank said the global economic outlook is looking increasingly positive but with plenty of obstacles to navigate.

These include the lagged effects of tighter monetary policy, while headline and core inflation are still above target in several major economies including the US and the Euro area.

It added: “The rest of 2024 will also see an unusually large number of elections, with the US election the main focus, providing the potential for major implications for the global trading system and our forecasts.

“Moreover, those elections come against the backdrop of several geopolitical hotspots, including in the Middle East and Ukraine. Indeed, given the surprises of recent years, it’s hard to imagine there won’t be at least some economic shock over the next couple of years. So a positive outlook for now but with uncertainties ahead.”

In the UK, Deutsche Bank says a cyclical recovery is under way and that it expects GDP to expand by 0.8% this year before rising to around 1.5% in the next two years. It adds that an early general election should mean increased fiscal certainty.

The first rate cut by the Bank of England is forecast in August, but with monetary policy staying restrictive for longer than Deutsche Bank assumed at the start of this year.

It adds: “While we expect quarterly rate cuts to take the Bank Rate from 5.25% to 3% by summer 2026, we also think there are upside risks to this view with firming growth and a stalled Federal Reserve potentially limiting how far the Bank of England will be able to go.”

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