The S&P 500 could tumble 20% this spring — then surge to a record high by the end of 2024, strategist says

• The S&P 500 could slump 20% this spring, then rally to a record high by December, Marko Papic says.
• A recession will hit stocks then rate cuts will boost them, Clocktower's chief strategist says.

Expect the S&P 500 to tumble 20% before summer — then surge to an all-time high by the end of 2024, Marko Papic says.

The benchmark US stock index will slump this spring as a recession sets in, the partner and chief strategist at Clocktower Group predicted during Rosenberg Research's latest webcast. But it'll stage a powerful comeback once the Federal Reserve starts slashing interest rates to juice the economy, said Papic, whose prophetic forecasts scored him a spot on Business Insider's "Oracles of Wall Street 2023" list.

"My view over the course of 2024 is, sure, there can be a significant equity drawdown in January, February, March, April, May," Papic said, before explaining why the decline would be swiftly undone.

"I think that what we have over the course of the next 12 months is the most extraordinary and unnecessary easing by a Fed not commensurable to the depth of the recession," he said. "And I think the S&P 500 will end up much higher than 5,000 by the end of the year."

Inflation spiked to a 40-year high of over 9% last year, spurring the Fed to hike rates from nearly zero to north of 5% in under 18 months. Higher rates encourage saving over spending and make borrowing more costly, which can help to slow the pace of price increases, but can also trigger a recession and cause unemployment to jump.

It's still unclear whether the Fed's inflation war will end with a so-called hard landing or recession; a soft landing where recession is avoided; or no landing where the economy barely slows if at all. Inflation has dropped below 4% in recent months, which is still above the Fed's 2% target. However, investors grew more optimistic last week after the central bank signaled rates may have peaked, and penciled in three rate cuts next year.

"I was in the no landing camp," Papic said. "I was in a maniacally bullish camp, if you will. I think that that is probably over. I'm actually pretty bearish over the next two quarters."

"I'm more in the camp that we are in the midst of a growth slowdown in the US," he continued. Republican lawmakers won't help President Biden's reelection chances by passing any spending bills next year, he said. Moreover, companies appear set to pull back on their capital investments next year after spending heavily during the pandemic, he noted.

"The House Republicans will not deliver any stimulus," Papic said. "Godzilla could rise from the Pacific Ocean and attack the shores of America, and we will not have fiscal stimulus in the US."

Papic also suggested the Fed might slash rates hard next year to help Biden stay in office, in the interest of maintaining price stability. A Trump presidency could herald inflationary spending on Republican initiatives, political pressure on the Fed to back off, and the embrace of a weaker dollar as a boon for US exporters, he said.

"If the Fed overcuts for political reasons, it will set the economy back on fire," Papic said. "If we do have a recession at any point over the next 10 months, and the Fed overcuts, it will light the cycle back up in extraordinary ways."

Papic made the case that aggressive Fed cuts aren't necessary as consumers — the engine of the US economy — are still in good financial health. He suggested many households have been hoarding cash, ready to deploy in the real-estate market once a recession hits and prices dip.