U.S. equities are expensive, crowded and incapable of standing up to higher interest rates, according to Societe Generale, which expects the stock market to see steep declines in 2014 before its "big sleep."

Apart from financials, most of the market is "back to pre-crisis levels," Societe Generale states in a new report.

"Over the last 30 years, the only period non-financial U.S. stocks traded higher was during the dot-com bubble (1997-2001), when markets entered into a period of 'irrational exuberance,'" Societe Generale warned in a recent report, Business Insider reports.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

"Everyone has found good reasons to buy US equities, even if some of those reasons are incompatible with one another: economic recovery, monetary stimulus, energy revolution, safe-haven area or simply a lack of alternatives," Societe Generale's global head of asset allocation, Alain Bokobza writes.

"After gaining 170 percent since March 2009, we believe that U.S. equities are a tired and crowded asset now."

Societe Generale believes the Federal Reserve's easy money policies have been "the main driver of US equities since 2008," and are the reason that stocks are maintaining their current levels. Despite the injections, Societe Generale expects stocks to soften this year.

Monday the S&P 500 closed at 1,676, but by year-end the bank foresees the index around 1,600.

Societe Generale predicts the Fed will taper at the January meeting, but expects the stock market declines to "accelerate at the start of 2014," as investors begin to price in that decision.

During the first quarter, the firm projects the S&P 500 dipping to 1,450, which is a 15 percent drop from its peak, then bouncing back to once again end the year at about 1,600.

To support this argument, the bank notes that the S&P 500 saw steep declines after previous rounds of monetary policy ended.

However, after next year's declines, the market will not forge higher as it has in the past; stocks will proceed to the "big sleep."

"In the two to three years that follow, the US equity index should remain relatively flat, burdened by higher yields (rate hikes in mid-2015), a higher U.S. dollar and limited earnings growth (return on equity is already high), but supported by better economic prospects and a new shareholder value cycle, staving off a bear market," the report says.

Societe Generale advises investors "to switch into eurozone and Japanese equities, where economic policy is much clearer, monetary policy very loose and positioning is low," CNBC reports. 

HSBC has also become more cautious about the United States saying, "valuations look stretched relative to the rest of the world," and noting that the firm sees "the potential for greater positive surprises elsewhere."

Like Societe Generale, HSBC is bullish on Europe, having upgraded it from neutral to overweight.

"The region is attractively placed from both a growth and monetary policy perspective," HSBC says, according to CNBC.

But the bank is not so optimistic about Japan, which it downgraded to underweight. CNBC says the firm finds Japanese equity valuations unattractive and foresees slow growth.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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