At a time of euphoria for Spanish equities, which is on track to close its best year in 14 years, Renta 4 analysts still give the Spanish selective Ibex-35 a potential upside of 17% in 2024.

Next year's rebound would take place in a foreseeable context of interest rate cuts on both sides of the Atlantic, which could reinvigorate economic activity and reduce financing problems for States, companies and households.

This scenario would also benefit from the soft landing predicted by most economists for the major economies, after a meteoric recovery in 2021 and 2022 thanks to then cheap money and public aid from the COVID-19 pandemic.

Nevertheless, the brokerage house's analysis team stresses the need for caution in a scenario of economic slowdown with inflation not yet under control and monetary policy still at very restrictive levels to contain prices.

"We see 2024 in a very positive light with the question of whether this optimism is exaggerated," said Juan Carlos Ureta, president of Renta 4 Banco.

A few hours before Federal Reserve Chairman Jerome Powell's last appearance of the year, many indices are still close to their multi-year highs, as they are discounting probable interest rate cuts earlier than expected.

The market remains confident that both the Fed and the European Central Bank will start cutting the price of money in the first quarter of 2024 and will do so five times over the course of the year.

However, according to Natalia Aguirre, director of analysis and strategy at Renta 4, these expectations are premature, as inflation in the United States showed no signs of cooling in November and the labor market is in good health.

"There is unbridled joy. We expect three rate cuts next year by both banks and for rates to remain in the long-term restrictive zone," Aguirre stressed.

Indeed, analysts agree that the 2% inflation target is still a long way off and that there are likely to be bumps along the way, as the wars in Ukraine and Gaza may re-inflate energy prices at some point, while the strength of the labor market may put upward pressure on wages.

The Ibex 35, which is up 23% so far this year, its biggest rally since 2009's nearly 30% rise, is among the European indices that have rallied the most this year, driven by large banking stocks BBVA (+49% year to date) and Santander (+37%), and textile giant Inditex (+56%), among others.

Nuria Alvarez, a Renta 4 analyst specializing in banks, believes that the party for banks will continue in 2024 as well, although she recommends proceeding with more caution.

"At the beginning of the year banks will give their annual guidance and there may be positive messages but the market may not believe them due to uncertainty related to the cost of risk," she said.

In its portfolio of five large stocks, the research team includes Grifols, IAG, Indra, Repsol and Sacyr.

The pharmaceutical company will benefit from the expected easing of monetary policy, while Indra and Sacyr are considered more defensive stocks, i.e. they can outperform the rest of the market in an adverse economic environment.

For their part, IAG and Repsol, despite being more sensitive to the ups and downs of the economic cycle, have reciprocal coverage, says César Sánchez-Grande of the analysis house.

"Upward crude oil movements could be favorable to Repsol but against airlines and vice versa," he said.

After a 2023 under pressure due to rising interest rates, real estate companies Colonial and Merlin Properties should take advantage of a more accommodative monetary policy, as a recovery in investment flow could offer attractive levels to enter, noted Renta 4.

(Reporting by Matteo Allievi, edited by Tomás Cobos)