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The rapid and repeated upgrades of US stock market forecasts as Wall Street strategists scramble to keep up with the rally has been eye-catching, but is nothing next to how optimistic economists are becoming.
Take a look at this chart of US consensus forecasts for US real GDP growth in 2024, from UBS.
A reminder that in mid-2022 almost four out of five economists polled by the FT predicted that we would be in a recession by now. The hard landing first became a soft one, and now looks more like a brief touchdown for refuelling. Even Ray Dalio is sounding somewhat optimistic.
As Apollo’s chief economist Torsten Sløk wrote over the weekend, with his emphasis below:
The market came into 2023 expecting a recession.
The market went into 2024 expecting six Fed cuts.
The reality is that the US economy is simply not slowing down, and the Fed pivot has provided a strong tailwind to growth since December.
As a result, the Fed will not cut rates this year, and rates are going to stay higher for longer.
Of course, this undermines one of the biggest factors behind the broadening stock market rally. Which should send equities lower. Which would weigh on confidence and spur investors to price in rate cuts. Which is good for stocks. Aren’t markets fun?
Further reading:
— A comprehensive round-up of 2024 investment outlook reports (FTAV)
