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They noted that 2023 was marked by two major macro surprises: US recession didn’t happen and China did not stage a strong recovery despite easing Covid measures.
The question arises: how will investors position for 2024?
“For me, there is one massive bubble waiting to burst in 2024,” analysts wrote in their preview.
The outgoing year saw the arrival of ChatGPT, which yielded a massive “Fear of Missing Out” (FOMO) rally. Analysts note that even bond yields surging above 5% failed to quell the AI enthusiasm. The outperformance of US tech stocks was notably driven by “Magnificent 7”.
As 2023 draws to a close, the U.S. tech sector’s weight in the broad market index equals that observed during a brief period of exuberance in the summer of 2000, a time associated with the dot-com bubble.
“The current 7x IT premium is as high as it ever has been, apart from the madness of the 2000 Nasdaq bubble,” analysts highlight.
While the majority of Wall Street strategists, including those at Citi and Goldman Sachs, see more room for tech stocks to continue outperforming, analysts at Societe Generale belong to the group of more cautious analysts.
“I understand all the arguments as to why the current conjuncture is sustainable. I even find some of them plausible. But you know what, I’ve been doing this job for 40 years and I’ve heard it all before.”
“So, if I had to warn of one seismic shock for 2024 that would shake investors to their core, it is not whether the US or China does or doesn’t go into recession or if inflation and interest rates are a bit higher or lower than expected.”
“No, the biggest surprise that could send a shockwave through portfolios is the US IT market cap bubble bursting and tipping the entire US market into a slump,” they wrote.
