In the ever-evolving landscape of financial markets, 2023 was a year that unfolded with unexpected twists, leaving analysts and investors on the edge of their seats. As we stand on the cusp of 2024, Société Générale, in a recent note, shares its outlook, presenting forecasts that echo a sense of caution and a forewarning of a potential bubble waiting to burst.
Reflecting on 2023: Macroeconomic Surprises and the Rise of ChatGPT
Before delving into the outlook for 2024, Société Générale analysts cast their gaze back at the preceding year. Two significant macroeconomic surprises marked 2023 – the anticipated US recession did not materialize, and China, despite the easing of Covid measures, did not witness a substantial recovery. Amidst these dynamics, the emergence of ChatGPT triggered what analysts describe as a “massive FOMO rally.”
The Looming Bubble in 2024: A Cause for Concern
Looking forward, Société Générale doesn’t mince words, asserting that there is a “massive bubble waiting to burst in 2024.” The analysts underscore that the exuberance of 2023, fueled by the advent of ChatGPT, has set the stage for potential challenges in the coming year.
AI Enthusiasm: Bond Yields Fail to Dampen Tech Stock Fervor
Even with bond yields surpassing 5%, the enthusiasm for Artificial Intelligence (AI) remained resilient. The analysts highlight that US tech stocks, led by the formidable “Magnificent 7” – Tesla, Nvidia, Apple, Microsoft, Alphabet, Meta, and Amazon – continued to outperform despite this notable financial headwind.
Echoes of the Dot-Com Era: Parallels with 2000 Internet Bubble
Drawing parallels with the dot-com era, Société Générale emphasizes the weight of the US technology sector in the general market index at the end of 2023. This weight mirrors the levels observed during the brief period of exuberance in the summer of 2000, a time synonymous with the Internet bubble. The analysts point out that the current seven-fold premium for information technology surpasses any other period, excluding the bubble frenzy of 2000.
Identifying the Main Risk for 2024: Information Technology Bubble Burst
Amidst the myriad of potential risks for the coming year, Société Générale analysts pinpoint what they consider the primary threat – the bursting of the information technology market bubble in the United States. This event, they suggest, could trigger a cascading effect, bringing down the entire US market. The repercussions of such a bubble burst, the analysts warn, have the potential to unleash a “shock wave in portfolios,” significantly impacting investors.
Conclusion: A Year of Vigilance and Strategic Decision-Making
As we approach the threshold of 2024, Société Générale’s cautionary notes serve as a clarion call for vigilance. The potential bursting of the information technology bubble looms large, casting a shadow over the financial landscape. Investors, now armed with this foresight, face the task of navigating through the uncertainties of the coming year with strategic decision-making and a watchful eye on the evolving market dynamics. The echoes of 2023 linger, and the narrative of 2024 unfolds against the backdrop of a potential bubble awaiting its moment of reckoning.