- The stock market will tumble as a mild US recession hits in early 2024, Evercore said.
- The firm predicted the S&P 500 would tumble 14% in the first quarter next year.
The economy is headed for a recession "sooner rather than later" – and that could send stocks tumbling in the first half of 2024 before rallying again through year-end, Evercore ISI's Julian Emanuel.
In an interview with CNBC on Monday, the senior managing director of Evercore's equity division predicted the economy would tip into a contraction sometime within the first quarter of next year. That could take the S&P 500 down to 3,970, Emanuel predicted, implying a 14% downside from current levels.
The US economy is facing a number of headwinds going into 2024. For one, the US government still risks a shutdown if lawmakers don't finalize a budget for the fiscal year by February, an event that has traditionally resulted in a sharp fall in stocks. That's accompanied by geopolitical headwinds, such as an election in Taiwan, which is a geopolitical flashpoint for the US and China, as well as election activity in the US picking up steam.
The US economy, meanwhile, is slowly but noticeably slowing. Unemployment edged lower to 3.7% last month but the labor market is starting to weaken.
Meanwhile, American consumers are starting to slow down after a ferocious spending spree that lasted through most of 2023. That could set the economy up for a consumer-led slowdown, one strategist told Business Insider, pushing the US to the brink of a recession.
Ultimately though, a recession may present a buying opportunity for investors, Emanuel said, as he believed stocks would benefit from inflation continuing to fall in the back half of the year. He predicted the S&P 500 would rebound to 4,750 by the end of next year, representing a 19% upside from where he saw stocks bottoming in the first half of 2024.
"There's going to be enough event risk over the next 12 months and there's enough tightening in the pipeline that there will be that temptation to sell low and buy high, and we don't want to do that," Emanuel said. "It's going to be a year where you're going to have to be patient ... and ultimately, patience will end up being rewarded."
Experts have warned of a potential recession over the past year as the Fed raised interest rates aggressively to lower inflation. High rates threaten to overtighten the economy and send it into a downturn, with the New York Fed now pricing in a 50-50 chance the US could tip into recession by November 2024.
Wall Street, though, appears to be growing more upbeat. Investors and analyst are warming up to the prospect of a soft-landing, with Bank of America and Deutsche Bank predicting the S&P 500 could notch a new all-time-high in 2024 as the economy avoids a downturn.