Global shares heading for a fall in the coming months, analysts say

Poll of analysts found 71% majority said a correction by year-end in their local stock market was either likely or very likely

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

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.

But while an unexpected surge in stock prices through May and 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 US Treasury yields to 2007 levels before the global financial crisis shows investors coming around to the view that even as the US Federal Reserve's hiking cycle campaign nears its end, rates will stay higher for longer.

US Fed chair Jerome Powell is due to deliver a speech at the central bankers' conference on Friday that has the potential to further embed those expectations.

A 71% majority of analysts said a correction by year-end in their local stock 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," said Marko Kolanovic, chief global market strategist at JP 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 US 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 indices, 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% already this year but down over 4% this month, was still forecast to end the year slightly higher. 

Terry Sandven, chief equity strategist at US 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% by year-end. Japan's Nikkei was predicted to gain nearly 8% from now, outperforming its major peers.

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 indices were expected to gain 1.3% and 0.6%. 

• Reuters