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Highlights
- AI to spike S&P 500 by 20%, mirroring '90s tech boom.
- China's GDP growth may slow to 3%, altering global markets.
- Apple faces potential market cap drop amid AI and China challenges.
A report by UBS’s global equity strategy team, led by Andrew Garthwaite, has outlined ten potential surprises for the financial markets in 2024. These predictions span various sectors, including technology, geopolitics, and the global economy, providing insight into the unexpected turns the market could take in the upcoming year.
AI-Driven Surge in the S&P 500
One of the standout predictions from UBS is the potential for a 20% surge in the S&P 500, driven primarily by advancements in generative artificial intelligence (AI). This optimism is based on AI’s ability to significantly boost productivity, mirroring the impact of the information communication technology revolution in the late 1990s.
The report suggests that AI could elevate productivity growth to 2.5%, a notable increase from the current Federal Reserve and UBS economists’ assumption of 1.5%. Subsequently, such a leap in productivity could result in lower inflation and unemployment rates, allowing for faster interest rate cuts by the central bank.
In addition, UBS anticipates that AI’s ripple effects on the market could see equities rally, with a potential 17% upside if these productivity gains materialize over three years. This prediction is underscored by recent market movements and earnings reports, such as Nvidia’s, which have already demonstrated the market’s sensitivity to AI’s promise.
Geopolitical Shifts and Economic Adjustments
The UBS team also forecasts significant geopolitical and economic shifts, including a potential end to the war in Ukraine. Such a development would likely decrease gas prices, benefiting European bulk chemical companies and the broader economy. The report highlights the possible need for a modern-day equivalent of the Marshall Plan to aid in Ukraine’s reconstruction, which would favor certain sectors, such as cement and capital goods companies.
UBS additionally suggests a slowdown in China’s nominal GDP growth to 3%, contrary to the acceleration many expect. Given China’s significant role, this slowdown could have far-reaching implications for the global economy. In addition, the report speculates on a steepening yield curve and the possibility of a candidate outside the current frontrunners winning the November election, adding uncertainty to the economic outlook.
Potential Downfalls and Surprises
Among the more specific predictions, UBS posits a significant downturn for Apple, with its market cap potentially tumbling due to various headwinds. These include the mature smartphone cycle, the absence of a foldable product line or a clear AI strategy, and geopolitical and economic challenges in China. This potential decline in Apple’s market value is notable, given the company’s current trading at a “software multiple,” despite the majority of its revenue stemming from hardware.
The report moreover touches on the broader implications of these surprises on the market and the economy. For instance, the impact of AI on productivity and the stock market could be a double-edged sword, with significant gains for investors and sectors that leverage AI effectively and potential disruptions and adjustments for those that do not.
UBS’s predictions for 2024 concurrently offer a glimpse into the potential high-impact events and developments that could shape the financial markets and the global economy. While these surprises are considered long shots, their potential to significantly influence market dynamics and investment strategies cannot be understated. Consequently, investors and policymakers may find value in considering these scenarios as they navigate the uncertainties of the coming year.
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