In a forecast released on Monday, Deutsche Bank anticipates a robust outlook for the S&P 500, projecting a 12% surge by the close of 2024. Despite the prospect of a brief and mild recession in the United States, the financial institution remains optimistic about corporate earnings, a key driver in this optimistic prediction.

Deutsche Bank analysts are eyeing a year-end target of 5,100 points for the S&P 500, signaling an ambitious outlook compared to the current landscape where the index has already marked an impressive 19% gain this year. Emphasizing their confidence in the resilience of corporate earnings, the bank projects a 10% increase in earnings for companies within the benchmark index, factoring in the potential impact of a “mild short” recession. Furthermore, should the U.S. gross domestic product experience a 2% growth, the bank foresees a substantial 19% surge in earnings.

This forward-looking perspective from Deutsche Bank contrasts notably with the median forecast of 33 strategists polled by Reuters, revealing a sizable 8.5% difference. The consensus among these industry experts settles at a median forecast of 4,700 for the S&P 500 by the end of 2024.

The Deutsche Bank strategists underpin their optimistic projection on the expectation that if the anticipated earnings growth materializes, valuations will remain robust, typically in alignment with an upswing in earnings growth. They further suggest that a decline in core inflation to pre-pandemic levels, without impinging on economic growth, could serve as a support pillar for the benchmark index. Such a scenario would indicate that the Federal Reserve might refrain from rate cuts unless a recession materializes, providing an additional layer of confidence in their outlook.

Anticipating a shifting economic landscape, Deutsche Bank envisions a “mild” U.S. recession in the initial half of the upcoming year. This scenario prompts the bank to predict a 175 basis point reduction in policy rates by the Federal Reserve. The bank’s economic forecast for the year ahead is relatively conservative, with an expectation of a meager 0.6% expansion in the economy.

This optimistic outlook from Deutsche Bank aligns with a broader trend in financial institutions revising their forecasts. Last week, BofA Global Research expressed a positive sentiment, projecting the S&P 500 to conclude the next year at 5,000. Their optimism stems from diminishing macro concerns and the Federal Reserve’s decision to temporarily suspend rate hikes. As financial institutions align on positive projections, investors may find themselves navigating a landscape poised for growth, albeit in the face of potential economic headwinds.

Source: Reuters