"What Could Go Right" Scenario For Stock Market Outlook

Wall Street's leading bear remains steadfast in his pessimistic outlook for the stock market, despite the major indices continuing to reach new record highs.

However, JPMorgan's chief global markets strategist, Marko Kolanovic, presents investors with a "what could go right" scenario that might invalidate his bearish outlook.

Kolanovic's 2024 year-end S&P 500 price target is set at 4,200, reflecting a potential downside of 23% from current levels, the lowest price target on Wall Street.

"Our cautious stance is based on the view that there is no upside in re-rating, and any potential upside must come from earnings growth, which we see as insufficient to justify equity risk even under best-case scenario assumptions," Kolanovic stated in a note on Monday.

Kolanovic projects subpar earnings growth for the S&P 500, estimating the index's earnings per share will be $225 in 2024, up from $221 in 2023.

This projection falls short of Wall Street's forecasts of $240 per share and the S&P 500's trailing 12-month earnings per share of $228, according to Bloomberg data.

According to the note, here’s what needs to happen to avoid a 20% market sell-off.

"For equities to avoid a 20%+ correction, it’s essential to believe that tech will soon become a significantly more meaningful driver of growth for the broader economy," Kolanovic said.

However, Kolanovic is skeptical of this bullish outlook and advises investors to remain patient before committing their capital.

"While we acknowledge that tech will remain a key driver of economic growth for years, we don’t foresee its impact on corporate P&Ls being profound so suddenly. Hence, we stay cautious, expecting economic growth to weaken, equities to correct, and investors to find a better entry point," he wrote.

Kolanovic's bearish stance on the stock market wasn't always solitary, but recently, several bearish stock strategists have shifted their perspectives.

On Monday, Evercore ISI strategist Julian Emanuel raised his S&P 500 price target to a street-high 6,000 from his previous target of 4,750, marking a 26% increase.

Last month, Morgan Stanley CIO Mike Wilson, a long-time bear, turned bullish and raised his S&P 500 price target to 5,400 from his earlier target of 4,500.


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