(Bloomberg) -- Global equities are poised for a double-digit rally in 2024 if the Federal Reserve pivots its monetary policy and allows the economy to avoid a recession, according to HSBC Holdings Plc strategists.
“If the Fed can engineer a soft landing, this would imply notable upside for equities,” a team led by Alastair Pinder wrote in a note. In prior Fed pivots where the economy avoided a hard landing, the S&P 500 rallied 22% on average between when the central bank first paused hikes and 6 months after the Fed started cutting.
The strategists expect the FTSE All-World Index to end next year at 480, implying upside of nearly 10% from Tuesday's level. The US and emerging markets remain their overweight regions, with both markets likely providing the most resilient earnings estimates.
HSBC's bullish call comes as the S&P 500 is recovering this month after slumping over the past three amid fears of the impact of higher-for-longer interest rates. Morgan Stanley's Michael Wilson called it a bear market rally and JPMorgan Chase & Co.'s Marko Kolanovic said it's a “knee-jerk” reaction, though Pinder's team sees it differently.
“Risks appear better priced after the recent pullback in equity markets,” the HSBC strategists said. Technology and consumer discretionary are among their preferred sectors.
The strategists also raised consumer staples and industrials to overweight and health care to neutral within their sector allocation. They downgraded energy and financials to neutral and basic materials to underweight.
Pinder said key risks to his team's view include a higher-for-longer interest-rate environment, elevated geopolitical uncertainty and noise around the US elections, as well as a sharper than expected slowdown in the Chinese economy.
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