JPMorgan’s bearish 2024 inventory market outlook may very well be derailed by a surge in small cap shares.
Technical strategist Jason Hunter expects the S&P 500 to fall 23% by mid-2024.
However a risk-on surge in shares which have largely missed out on this yr’s rally might trigger a rethink.
JPMorgan’s high chart professional Jason Hunter was bearish on the inventory market heading into 2024, however a danger has emerged that might derail that view.
He predicted the S&P 500 will re-test its bear market backside reached in October 2022, forecasting a dive to three,500. That is by far one of the vital bearish projections on Wall Avenue, much more downbeat than JPMorgan’s home view that the S&P 500 falls to 4,200 subsequent yr.
Hunter’s pessimism is predicated on the truth that a lot of this yr’s rally has been pushed by solely a handful of mega-cap tech shares. The shortage of breadth, or market participation within the present rally, is regarding to him.
However a current breakout above main resistance ranges for the broad inventory market averages is beginning to problem Hunter’s bearish view.
“A pure chart-based evaluation leaves our bearish first half fairness outlook tactically on the backfoot going into the fourth quarter,” he mentioned in a be aware late final month.
On the time, he mentioned a surge in inventory market laggards could be “a really low likelihood occasion.” However since Hunter’s outlook was revealed, these laggards have in actual fact surged additional.
The small-cap Russell 2000, which largely sat out this yr’s inventory market rally, has begun to outperform the S&P 500. Over the previous week, the Russell 2000 is up practically 3% whereas the S&P 500 is about flat.
That places the Russell 2000 up about 7% over the previous 4 weeks, outpacing the S&P 500’s achieve of about 4.8% over the identical time interval.
It indicators that buyers may very well be lastly rotating into laggard shares and pushing them larger. And in accordance with Hunter, that kind of value motion would derail his bearish outlook for 2024.
“We’re due to this fact searching for giant cap to type short-term distribution patterns into the early weeks of subsequent yr, or for indicators that the laggards are beginning to breakout. The latter is clearly the danger state of affairs for our base-case outlook and can depart us having to rethink the 2024 trajectory,” he mentioned.
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