Societe Generale is out with a call for the end of the global stock bull market:
In its year-ahead outlook for 2016, SocGen expects that aside from the US, next year will be another good year for global stocks.
The European Central Bank’s quantitative easing program, as well as the Bank of Japan’s QE program and reform efforts, will help support stocks around the world.
The Federal Reserve’s first rate hike in over nine years, however, will cause some volatility and generally pressure equities in the US.
But after next year, the party’s over.
Here’s SocGen (emphasis added):
2016: another good year for equities. We expect the global equity market to deliver a good performance in 2016, despite some volatility on the first Fed rate hikes, with an end to the bull market in H2 2017 ahead of the business cycle peak forecast for H2 2018.
The S&P 500 should absorb the Fed rate hike and finish the year flat. US dollar strengthening and high bond yields offset the strong US GDP growth already priced in. The presidential election in November 2016 could also be a source of volatility for US equities.
European equities to deliver a strong performance in 2016.
As in 2015, the Eurostoxx index should deliver a strong performance (above 15%) in our view, driven by monetary policy changes, investment plans, a weaker currency, and better domestic newsflow. […]
Asia equities to deliver contrasted but positive returns. While in 2015, all you needed to do was to buy China and Japan stocks and, more importantly, hold them, returns next year are more likely to come from non-China equities. We expect the performance in the Asia Pacific region to be driven by robust growth in internal demand, (often) weaker currencies, and in the case of India and Japan the pursuit of reforms.
And so while the year-ahead looks pretty good, all things considered, the firm is sticking its neck out on a pretty specific call for an end to the current global business expansion.
At the end of 2018, SocGen thinks the S&P 500 will be down about 16% from current levels, while stocks across Europe — except for Germany — will still be higher on a cumulative basis.
2018 itself, however, will be ugly: SocGen sees stocks falling at least 10% in almost every major stock market in the world.
As for the specific trades the firm likes — outside of staying long European and Japanese stocks — SocGen recommends staying long the dollar, betting on an increase in oil prices and an uptick in inflation, while the firm wants to short gold and stay away from US high-yield bonds.
SocGen also expects that the Fed will (finally) embark on a rate-hike cycle next year, but it’s never too early to call for the beginning of the next period of zero interest rates.
In this case, expect 0% interest rates again in 2020.