UBS equity strategists initiated an S&P 500 price target of 4850 for year-end 2024, which suggests less than 6% upside from current levels.
This forecast is based on EPS estimates of $221, $225, and $246 for 2023-25, implying 1.8% growth in 2024, and 9.3% in 2025.
Analysts, formerly at Credit Suisse, argue that higher risk premiums “should put downward pressure on valuations.”
“On average, stocks fall 6-7 months prior to a recession. However, declines have ranged from 0-15 months prior. With P/Es 2-3 multiple points below their 2022 highs, and the backdrop strong, we see further upside over the near-term. That said, we expect a double-digit drawdown some time in 2024,” analysts said in a note.
UBS says the market continues to exhibit unexpected strength, with year-to-date GDP surpassing expectations, abundant job opportunities, and double-digit EPS growth. Although the S&P 500 has seen a decline of -4.4% from its January 2022 highs, the primary factor is attributed to rates rather than underlying fundamentals.
Despite the robust economic conditions, recessionary forecasts persist, with a 50% probability according to the Bloomberg economist survey and UBS projecting a GDP decline in the second and third quarters of 2024.
These predictions are influenced by factors like “an inverted curve, tighter lending standards, a delayed response to Fed policy, and a stretched consumer.”
SPX closed at 4,643.70 on Tuesday.