Stay upbeat on U.S. stocks, says SocGen, which just boosted its S&P 500 target

He says in our call of the day that they are staying bullish near term, “despite the likely jitters in 2024,” as investors will begin accounting for a more optimistic economic outlook. So recession calls will be “deleted/delayed,” they say.

Kabra says they still see a U.S. recession likely mid next year, but for now the S&P 500 will be the “last man standing,” when it comes to defending its roughly 16% gain seen this year.

“We continue to see support for the S&P 500 from AI-driven investments and fiscal/reshoring manufacturing spending. Further, interest-rate coverage for the largest 10% of U.S. stocks by market cap (78% of S&P 500 market cap) is near all-time highs, and thus the Fed hikes have had a limited impact on these companies –which are even earning interest on their cash balances,” said the strategist in a note that published Wednesday.

SocGen has been bullish on growth stocks — up 35% so far this year — and bearish on value names — flat –and expects that trade will get “stretched for the rest of the year.” He said earnings per share for growth stocks should start to rise in the next two quarters:

He suggests sticking with growth names, as tech stocks are likely to benefit from that EPS inflection, supported by robotics and AI-related stocks. They also like industrials, thanks to an expected fiscal/reshoring boom spurred by the Inflation Reduction Act. Kabra says they’d sell growth stocks if the Institute for Supply Management manufacturing index goes over 55 (It has been contracting for 10 months) or if U.S. 10-year Treasury yields top 5%, which he doesn’t expect.

Read: 20 stocks of aerospace and defense companies expected to grow sales most quickly through 2025

Another plus for U.S. stocks is that they stack up well against other international markets, with stagflation in Europe and a disinflationary downturn in China. “With EPS momentum already stronger for the S&P than the rest of the world, it will not take a lot of convincing for global investors to plough money into any weakness in the large U.S. equities,” he said.

Kabra and his team do see a stumbling block ahead for 2024, with this table laying out their S&P 500 road map:

Kabra says it will take a couple of quarters for their recession expectations and credit market shocks to hit markets.

“We expect a 15% shock in the S&P 500 in 2Q24, likely driven by a contraction in U.S. consumer spending. However, with a return to 5% nominal GDP growth in 2025, the S&P 500 should recover,” he says. Bond yields will drift down to 3% to 3.5% in a soft recession and aggressive Fed rate cuts should be a feature by the middle of next year, he says.

Read: Howard Marks says good luck beating the stock market without Apple, other big winners this year

The markets

Stocks

shook off a little gloom over CPI data and are higher to start the session, with Treasury yields

steadying and the dollar

giving up gains. It was a mostly weaker day across Asia

.

Read: Here’s what DoubleLine’s Jeffrey Gundlach thinks about Bill Gross’s ‘bond king’ slap down

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The buzz

Headline consumer price inflation data for August came in mostly as expected, up 0.6% and 3.7% on an annual basis — the highest in 14 months (0.6%, 3.6% forecast). But on the core side, which strips out food and energy costs, prices rose 0.3% against an expected 0.2% gain. Those prices rose 4.3% annually, which was as expected. Rising rents played a role in that inflation nudge higher.

Ford
F
and General Motors
GM
stocks are rising after UBS lifted them both to a buy, rating, saying focus on growth and not a looming strike. Elsewhere, the EU has launched a probe into subsidies provided by China to electric vehicle makers.

China has denied banning Apple’s
AAPL
iPhones as some news reports indicated last week, but says it has noted security incidents related to those handsets.

Shares of Rocket Pharmaceuticals
RCKT
are up 17% after the late-stage biotech said it reached alignment with the FDA on a trial for its treatment for Danon disease.

KULR Technology stock
KULR
is off 29% after the sustainable energy management group said it was planning a public offering of common stock to pay down debt. And Evolution Petroleum shares
EPM
are down 13% after the oil and natural gas group reported a sharp revenue fall.

Binance U.S. CEO Brian Shroder has left the crypto exchange as about 100 workers were also laid off, say reports.

Talks between Russian President Vladimir Putin and North Korean leader Kim Jong Un got under way Wednesday at a remote Siberian rocket launch facility.

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The chart

Why is the Fed unable to keep inflation under control? Americans want to dine out and take pricey vacations, says this chart tweeted by Kobeissi Letter’s editor in chief and founder, Adam Kobeissi:

The tickers

These were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern:

Random reads

Pink-leathered armchairs, bedrooms. All aboard Kim Jong Un’s armored train.

Flood of “good quality wine” sloshes through Portuguese town.

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