By Lewis Krauskopf and Subhadeep Chakravarty
(Reuters) -HSBC on Wednesday issued an upbeat forecast for the S&P 500 for next year, boosted by the prospects of Federal Reserve rate cuts as inflation moderates but the U.S. economy avoids a severe slowdown.
HSBC expects the S&P 500 to end 2024 at 5,000, representing a roughly 8% gain for the benchmark U.S. stock index from Tuesday's closing level.
"We believe market expectations are more optimistic heading into 2024 but far from euphoric," Nicole Inui, head of equity strategy, Americas at HSBC Global Research, said in a report on Wednesday.
Inui said history suggests the potential for at least a 20% return from now through the six months following the first rate cut, which the firm expects in the third quarter of 2024.
The expectation of a rate cut in the third quarter "is not premised on a sharp economic slowdown, but on falling inflation," according to the note.
"While upcoming Fed cuts add significant tailwinds for US equities, the US election cycle, slowing economic activity, and earnings growth expectations below consensus temper our enthusiasm a bit," Inui and her team said.