Stock Market Braces for Possible 17% Decline in 2024, Evercore ISI Warns of Earnings Shortfall and Recession Risks

The stock market could be in for a substantial 17% dip this year as corporate earnings are expected to fall short of investors’ optimistic projections. This is according to Julian Emanuel, the senior managing director of Evercore ISI’s portfolio strategy team. 

Despite growing investor optimism surrounding potential rate cuts from the Federal Reserve and the prospect of a soft landing for the US economy, Emanuel points to significant headwinds that continue to loom over the stock market.

While Wall Street consensus is anticipating an 11% corporate earnings growth in 2024, Emanuel considers this expectation high, even if the US manages to avoid a slowdown. 

In a recent interview, he highlighted Evercore’s belief in a mild recession striking the economy in the middle of the year. Emanuel expressed concerns about overly optimistic expectations regarding inflation, solid earnings, and uninterrupted growth, stating:

The expectations, in general, are just absolutely great in terms of inflation coming in, earnings being solid, and growth not disappointing.

Senior Managing Director, Evercore ISI, Julian Emanuel

Double-Edged Sword for Stocks

The risk of a recession has been a consistent topic among experts, mainly due to the Federal Reserve’s aggressive interest rate hikes in the previous year to combat inflation. Although markets anticipate five to six rate cuts in response to a cooling economy, Emanuel cautions that steep rate cuts traditionally accompany or precede economic slowdowns. “Frankly, history tells you. “ You don’t want that to happen,” he stated, emphasizing that such a scenario usually unfolds when growth disappoints.

This challenging environment poses a threat to the trajectory of stocks, especially considering that both the S&P 500 and Dow Jones Industrial Average have recently reached their all-time highs. 

According to Julian’s estimates, stocks usually witness a 13% peak-to-trough difference in a typical non-recession year. However, in 2024, the peak-to-trough spread could be even steeper, potentially leading to a 16%-17% decline from their highs.

These concerns are not unique to Evercore, as other voices on Wall Street have also been cautioning about a potentially rocky year for stocks, particularly in light of lingering recession risks. One notable market bear has predicted a potential 65% fall in the S&P 500, even if the Fed shifts towards interest rate cuts this year.