One US Analyst Says Do not Even Consider Turning Bullish Until 2024 as ASX Share Prices Have Rallied Too Hard to Begin 2023, According to a UBS Equity Strategist

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Australian equity markets have started the year on a solid foot. However, one UBS equity strategist has warned that share prices result in too much optimism, and investors should be cautious before turning bullish on the market.

The debate about whether the economy will experience a soft landing or a recession in the United States remains heated. The Federal Reserve’s terminal fed-funds interest rate is expected to peak at between 5 per cent and 5.25 per cent, prompting investors to be more cautious as they brace for potential downturns in economic activity.

Goldman’s chief economist Jan Hatzius said, “We have cut our subjective probability that the US economy will enter a recession in the next 12 months from 35 per cent to 25 per cent, less than half the 65 per cent consensus estimate in the latest Wall Street Journal survey.”

The US and Australia are experiencing tight labour markets, the exact opposite of what typically signals the beginning of a recession.

Last week, US Federal Reserve Chairman Jerome Powell delivered a speech addressing the current state of the US economy and recent equity market movements. Powell reaffirmed that he believes there is a path to achieving a 2 per cent inflation rate without significant economic decline or increased unemployment levels.

As for whether there will be an economic downturn, Powell stated that despite rising consumer spending and strong job growth, he remains cautious about any potential negative impacts from inflationary pressures.

All the recent developments suggest that financial markets and businesses are increasingly optimistic about the upcoming days as the economic developments are concerned. However, caution should be exercised when making long-term investment decisions, as uncertainty can still affect financial markets and businesses.

Considering these factors, current conditions may hold out until 2024 before investors can turn bullish on shares and other assets across both countries.

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