Three risks the S&P 500 must overcome to break through the ceiling and continue to rise

As we move through the year and watch the markets move, there is no shortage of forecasts and predictions of experts about the economy, markets, geopolitics and new technologies. One of the main tasks for analysts now is to determine where the S&P 500 and other major indexes might go this year. When asked about the possibility that major global indices have peaked, Eduardo Fausanalyst Rent 4, believes that: “they still have room to grow in the coming months, despite being heavily overbought. We rather think it’s a buying opportunity,” he says.

The outlook for the S&P 500 is encouraging.

Various companies such as UBS Global Research or Goldman Sachs, They raised their forecasts for the S&P 500 index for 2024, placing it at 5,400 and 5,200 points, respectively. Société Générale, for its part, goes further and estimates that the S&P 500 index could rise by up to 25% before reaching levels of “irrational exuberance” comparable to the dot-com era. Even Economics of capital businesses predict the S&P 500 will reach 6,500 by 2025, which would represent a 30% increase from current levels.

However, not everything will be a bed of roses. Some Analysts warn of excessive optimism that could lead to a correction. In addition, rising interest rates, resistance to inflation and revaluation of certain factors may have a negative impact on stocks. The future of the S&P 500 is inherently uncertain, and while the short- and medium-term outlook is positive, there are three imminent risks that could disrupt the stock market and end the current bull cycle.

Fed rate hike

Ben EmonsThe former president of the New York Federal Reserve and current manager of NewEdge Wealth commented in a recent interview with Bloomberg News this week that there is a small chance that current rate level: from 5.25% to 5.5%. not high enough to slow US economic growth. This would not be surprising, he said, given that members of the Federal Open Market Committee (FOMC), including the chairman Jerome Powellthey leave the possibility of increase at the table.

While the likelihood of the Fed raising rates seems very unlikely, the prospect of the Fed not cutting rates is more likely. January inflation data, which show an increase of 3.1% compared to the expected 2.9%, support the thesis that the disinflation process may not be so fast after all.

Economic and business downturn

When interest rates on long-term US bonds, such as the 10-year note (4.3%), are lower than those on short-term bonds, such as the 2-year note (4.6%), it is seen as a sign of a future recession. This is because it indicates that Restrictive monetary policy can lead to credit problems and financial crises. impact on the economy and stock market. However, some analysts believe that this crisis has already happened in the first half of 2023, when the Federal Reserve had to support banks during the problems of Silicon Valley Bank.

Beyond credit crises, business activity can be a key indicator of economic problems. Moody’s Analytics suggests that companies may anticipate difficulties as they adjust wages and investments. He the risk arises if consumer spending falls because their savings are depleted. However, the US economy currently appears strong, with high employment and few jobless claims. In January, 353,000 jobs were created and the unemployment rate was 3.7%.

Puncture technology

In 2024 The value of Apple and Tesla fell, while Nvidia, Meta, Microsoft, Alphabet, and Amazon are leading the market. Bank of America experts warn that high interest rates could hit these big tech companies, comparing the current situation to past bubbles fueled by innovation and monetary policy.

On the other side, Oxford Economics indicates that the top ten companies now represent 32% of the S&P 500, exceeding the peak of the dot-com bubble. This dominance, led by the Magnificent Seven and Eli Lilly, poses a risk, the firm said. Profit from seven large technology companies will grow by 22% in 2024, But if inflation rises more than expected, or if bond interest rates rise, these companies will fall short of expectations, which could cause their value to fall and affect financial market stability. A good start to the year, economic growth and risk appetite are encouraging factors, but we must always be prepared for the risks that lurk on the horizon.