UBS, a global financial services firm, has identified three significant risks that could potentially trigger a 23% plunge in the stock market this year.
What Happened: UBS’ chief investment officer for U.S. equities, David Lefkowitz, has outlined three potential risks that could lead to a significant downturn in the stock market in 2024, reported Business Insider.
The bank outlined a bearish scenario for the stock market, projecting a 23% decline in the S&P 500 to 3,700. This level is slightly above the low points recorded during the bear market in October 2022.
The first risk is a potential recession in the U.S. within the next six to 12 months. Lefkowitz said, “Central banks are forced to raise interest rates even more to keep them at lofty levels for longer than expected.”
He suggested that the cumulative effects of the Federal Reserve’s interest rate hikes and a decrease in household cash reserves could lead to an economic downturn in the latter half of 2024.
The second risk is persistently high inflation, which could disrupt the economy and consumer expectations of a decline in inflation, potentially leading to stagflation and a wage-price spiral.
The third risk is an escalation in geopolitical tensions, particularly in ongoing conflicts such as Russia-Ukraine, Israel-Hamas, and China-Taiwan. This could disrupt energy markets, exacerbate inflation fears, and impact the Fed’s plans for interest rate cuts.
Lefkowitz believes that these three risks combined could bring an end to the current bull market and potentially lead to a new bear market, testing the lows seen in 2022.
Why It Matters: The warning from UBS comes amid a mix of forecasts for the stock market in 2024. While some experts, such as BlackRock’s Rick Rieder, have dismissed recession fears and predicted a potential surge of up to 12% in the S&P 500, others, like billionaire investor Jeffrey Gundlach, have warned of potential risks and a 75% chance of a recession.
Additionally, the global economy is facing other challenges. For instance, economist Campbell Harvey, who has historically used the inverted yield curve as a recession predictor, has forecasted a slowdown for the U.S. economy in 2024.
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