JPMorgan’s downbeat outlook for stocks in 2024 could be derailed by a surge in small-cap stocks.
Technical strategist Jason Hunter expects the S&P 500 to fall 23% by mid-2024.
But a surge in risk appetite for stocks that have largely missed out on this year’s gains could prompt a rethink.
J.P. Morgan’s top chartist Jason Hunter is pessimistic about stocks heading into 2024, but emerging risks could undermine that view.
he predicts S&P 500 set to retest bear market bottom This number is reached in October 2022 and is expected to fall to 3,500.So far One of Wall Street’s most pessimistic predictions Even more pessimistic than JPMorgan’s internal view that the S&P 500 index will fall to 4,200 points next year.
Hunter’s pessimism is based on the fact that this year’s rebound Driven by only a handful of large-cap tech stocksHis concern is the lack of breadth or market participation in the current rally.
But the stock market’s recent average break above major resistance levels has begun to challenge Hunter’s bearish view.
“Purely chart-based assessment leaves our bearish first-half equity outlook at a tactical disadvantage heading into the fourth quarter,” he said in a note late last month.
At the time, he said a surge in the stock market’s laggards would be an “extremely low-probability event.” But since Hunter’s outlook was released, those laggards have actually surged further.
Russell 2000 small-cap stocks have been largely absent from the stock market’s rally this year, but are now starting to outperform the broader market. S&P 500 IndexThe Russell 2000 index rose nearly 3% over the past week, while the S&P 500 index was essentially flat.
That has put the Russell 2000 up about 7% over the past four weeks, outpacing the S&P 500’s gain of about 4.8% over the same period.
This suggests investors may eventually turn to laggard stocks and push them higher. Hunter said this price action would undermine his bearish outlook for 2024.
“As a result, we are looking for large-cap stocks to form a short-term distribution pattern in the first few weeks of next year, or for signs that the laggards are starting to break out. The latter is clearly a risk scenario for our base case outlook and will leave us with a need to reconsider 2024. development trajectory,” he said.
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