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Equity market crash likely in next 12 months: Societe Generale

Société Générale S.A., a well-known French multinational banking, and financial services company headquartered in Paris seems to be less enthusiastic about equities over the next 12 months or so. According to the analysts at the bank, stretched valuations and rising bond yields to limit equity index performances in 2018 and the prospect of a US economic slowdown in 2020 to further cramp returns in 2019. The bank raised concerns about the quantity of shorts on volatility, which could potentially strongly deteriorate the risk-reward profile of the equity markets. With regard to S&P500, the bank said in its research report, “The S&P 500 has reached our target for the end of this cycle (2,500pts) and is now entering the expensive territory. Indeed, on all the metrics, US equities are trading at levels only seen during the late-90s bubble. Since Trump’s election, the US equity market has risen 24%, but only half of this came from earnings growth. The other half has been driven by P/E expansion. According to our calculations, the US equity market is already pricing in potential tax reform. The rise in bond yields and Fed re-pricing should be headwinds against further US equity rerating.”

The bank’s forecast for equity indices indicates that analysts are expecting major slide by the end of 2019. Below are the forecast of the bank for major global indices by the end of 2019,

  • S&P 500 - 2000
  • Stoxx600 - 310
  • Eurostoxx50 - 3000
  • FTSE100 -5500
  • CAC 40 - 4500
  • DAX - 11000
  • FTSE MIB - 17000
  • IBEX35 - 8000
  • SMI - 8000
  • Market Data
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