(Bloomberg) -- The S&P 500 Index is set to rise toward its all-time high early next year, pullback midyear and then rally back toward the highs, according to strategists at Societe Generale SA.

A team led by Manish Kabra sees the benchmark for US equities jumping toward 4,750 in the first quarter and then dropping to 4,200 mid-year as a mild recession ensues. That 12% drop will mark a buying opportunity, the firm said, as the Federal Reserve cuts interest rates, sparking a modest economic recovery that propels the index back to 4,750 in the final three months of the year. It rose 0.4% on Monday to 4,533 as of 12:45 p.m. in New York.

“The S&P 500 should be in ‘buy-the-dip’ territory, as leading indicators for profits continue to improve,” Kabra wrote in his annual US equity outlook to clients. “Yet, the journey to the end of the year should be far from smooth” he added, citing an economic downturn, a looming credit selloff, and ongoing quantitative tightening as hurdles traders still need to face.

The S&P 500 last hit a record of 4,796 on Jan. 3, 2022.

NOTE: Strategists’ S&P 500 Index Estimates for Year-End 2024 (Table)

SocGen’s forecast resembles others on Wall Street, which see clarity around the outlook for US growth next year buoying stocks — but not before more volatility. Morgan Stanley’s Mike Wilson — among the Street’s staunchest bears — says near-term uncertainty will give way to an eventual earnings recovery in 2024. Goldman Sachs Group Inc.’s David Kostin anticipates next year’s gains will be concentrated in the second half of the year, when the firm predicts the first Fed cut and the US general election is behind investors.


Next year is likely to be “a decisive year for the S&P 500, which should find its ‘true’ bottom for this cycle,” Kabra said.

Until that happens, without a recession or Fed cuts, narrow market breadth is expected to persist, he said. While the S&P 500 is up more than 17% year-to-date, without the 20 “artificial intelligence-boom” stocks, the gauge would be roughly flat for the year, according to SocGen.

US equities have staged a powerful recovery from 2022’s rout as the doom-and-gloom scenarios much of Wall Street called for heading into 2023 failed to materialize. A gain next year would be the index’s fifth in six years, with only 2022’s Fed-induced selloff delivering a fullyear pullback. SocGen’s S&P 500 year-end price target for 2024 is just shy of the index’s record high of 4,796 seen last January.

Still, caution remains among US equity investors, who’ve largely flocked to large-cap safe havens while shunning other pockets of the market. While the S&P 500 and tech-heavy Nasdaq 100 Stock Index are on pace for double-digit gains, in contrast, the small-cap Russell 2000 Index and equal-weighted version of the S&P 500 are each up less than 3%. SocGen anticipates one percentage point of rate cuts would trigger a more broad-based recovery for stocks. 

“The narrow breadth in equities will likely continue until a recession begins, the Fed rate cuts become more prominent and the yield curve is firmly in positive territory, but most of these triggers are set to be back-loaded in 2024,” Kabra said.

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