February 22, 2024


The latest stock gains will hold until the end of the year and survive a mid-year market correction, if central banks implement interest rate cuts later than investors have currently priced in, one economist says.

Gains will stay in line with recent rallies despite seasonal volatility, as markets potentially re-price to acclimate to a different rate cut trajectory from central banks, Ludovic Subran, chief economist at German financial services firm Allianz, told CNBC’s “Squawk Box Europe” on Monday.

Investors currently “expect a huge pivot and they expect a very early pivot,” Subran said, despite signs now suggesting a mid-year rate pivot from central banks that may come in smaller than previously thought.

“That means substantial volatility ahead, when people are going to re-rate, but I also think that what we’ve seen as gains from the last part of ’23, and early ’24, are going to be there by the end of the year,” he continued.

European stocks went on a tear through the final two months of 2023, taking the regional Stoxx 600 index to an annual gain of 12.7%, according to LSEG data. The U.S. S&P 500 has meanwhile been on the ascent since late October and on Friday closed above 5,000 for the first time on record.

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Stoxx 600 index.

Companies have reported a solid earnings season in recent weeks, with markets experiencing only a slight rattling of sentiment as some central bankers push back on rate cut expectations — particularly in Europe.

“I think it’s going to be very seasonal. So we’re going to have maybe a correction… investors are going to see that pivoting is not going to be so huge because of growth resilience in the U.S., or maybe because of inflation stickiness in Europe,” Subran told CNBC.

“But then I think by the end of the year, we’re going to have quite some good 5-10% equity returns. And that’s quite good, you know, for a year of normalization in everything else in the economy.”



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