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Global stock markets are heading for a correction in coming months, though overall they should post marginal gains between now and the end of 2023, according to a majority of analysts polled by Reuters.

A bad year for stocks in 2022 carried into this year as global central banks battled inflation with interest rate rises that are now largely drawing to an end.

TSX forecasts reduced as downside risks lurk

But while an unexpected surge in stock prices through May-July has coincided with news most major economies are performing better than expected, a nagging worry among analysts that stocks will underperform has not really gone away.

Attractive rates in money markets well above inflation have also dimmed the allure of equities, which during a long era of zero interest rates and low inflation were repeatedly described as the only game in town for investors.

A jump in benchmark U.S. Treasury yields to 2007 levels before the Global Financial Crisis shows investors coming around to the view that even as the Federal Reserve’s hiking cycle campaign nears its end, rates will stay higher for longer.

Fed Chair Jerome Powell is due to deliver a speech at the central bankers’ conference in Jackson Hole on Friday that has the potential to further embed those expectations.

A 71-per-cent majority of analysts, 55 of 77, who answered an additional question in the Aug. 9-23 poll said a correction by year-end in their local equity market was either likely or very likely. The remaining 22 said unlikely or very unlikely.

“We do not see any upside from here into year-end … but we think there is a good chance that equity markets move meaningfully below our year-end projections in the interim,” noted Marko Kolanovic, chief global market strategist at J.P. Morgan.

But market volatility is low, despite a substantial upgrade to expectations for how the world’s largest economy will perform that is wiping out once-widespread predictions for Fed rate cuts early next year.

“Recession projections have been erased, with soft/no landing the new base case. There is no more fear, only complacency,” noted Mr. Kolanovic. A “fear of missing out” is said to have helped drive much of the equity market rallies of recent years.


Most indexes, including Wall Street’s benchmark S&P 500, are expected to record marginal gains by year-end from current levels, according to the poll.

The S&P 500 index, up nearly 15 per cent already this year but down over 4 per cent this month, was forecast to end the year at 4,496, about 2.2 per cent above Monday’s close of 4,399.77. The year-end forecast in February’s Reuters poll was 4,200.

Terry Sandven, chief equity strategist at U.S. Bank Wealth Management, said the index “may currently be in correction mode.”

Of 15 stock indices polled on, only four were forecast to rise more than 5 per cent by year-end.

Japan’s Nikkei was predicted to gain nearly 8 per cent from now, outperforming its major peers. Among emerging economies Brazil’s Bovespa and Mexico’s S&P/BMV IPC were forecast to rise around 13 per cent and 7 per cent respectively.

Japan’s central bank has been running ultra-easy monetary policy throughout the global cycle, resulting in a sharply weaker yen, and Brazil’s central bank has just started cutting interest rates.

Nearly all other indices were expected to either fall or post only marginal gains before the year ends.

Europe’s STOXX 600 and the blue-chip Euro STOXX 50 indices were expected to gain 1.3 per cent and 0.6 per cent.

Indian equities, up over 7 per cent for the year, were expected to rise only another 1.2 per cent.

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