- Inflation is steadily cooling, optimism about rate cuts has increased, and stocks are rising in November.
- Goldman Sachs said the S&P 500 may rise 8% in 2024 as pre-2008 conditions return.
- Business Insider asked stock market veterans to share their outlook for 2024.
Markets believe the Federal Reserve is about to finished with its rate hike cycleand stocks have been enjoying a streak of gains driven by optimism over looser monetary policy.
The main indices will rise in 2023, with the S&P 500 achieving a healthy gain of more than 17% so far this year.
Goldman Sachs, which expects the S&P 500 to rise 8% next year, highlighted in a recent note that Pre-2008 conditions are returning.with markets and the economy emerging from a decade of low inflation, near-zero interest rates and negative real yields.
David Russell, global head of market strategy at TradeStation, said he agreed with the pre-2008 view and that "the headwinds of the financial crisis and the great recession have passed."
"This moment has striking similarities to 1995, when the historic bull market took shape," Russell said. "That rally came as inflation cooled and the Federal Reserve stopped raising rates. Baby boomers were then in their 30s and saving for retirement. Millennials are now at the same stage in their lives. Stocks of the Internet were taking off back then. This time, we have the rise of AI."
Getting back to normal
Gone are the days of ultra-low rates, and now the mantra is โhigher for longer.โ The Federal Reserve is likely to maintain tight policy until the economy weakens significantly, which will pressure corporate margins and profitability in 2024 and could lead to mixed returns for investors.
Steve Wyett, chief investment strategist at BOK Financial, told Business Insider that the rising cost of capital will begin to separate well-run companies from the rest, and any errors in capital allocation will be amplified.
Unlike 2008, downside risks will be driven by fiscal positioning, he noted, rather than a real estate crisis.
"We've been in a long period of ultra-low rates so there is a risk of quite significant levels of capital misallocation and this will become known as we move into 2024," Wyett said. "It's true that many companies, particularly large caps, extended debt maturities when rates were low, which is delaying the impact of a higher cost of capital, but for those with maturing debt, the "Differences in the cost of capital will be significant and will have a negative impact. margins."
cautious optimism
BOK Financial remains cautious on stocks in the year ahead, although its outlook expects the presidential election to provide a modest boost.
Mark Hackett, head of investment research at Nationwide, echoed that view. He said the warning signs are there (such as credit card transactions, commercial loan growth and an inverted yield curve), but stock markets appear to have already priced in the bad news.
However, if the economic slowdown doesn't end up being as pronounced, stocks could soar.
"While the S&P 500's P/E ratio is modestly higher than the average over the past decade, small-cap, value and international companies are substantially less expensive than large-cap growth and are at multi-decade highs. "Hackett said in emailed comments. "In other words, this makes the risk/reward profile more attractive and is likely to generate outperformance in 2024 and beyond."
S&P 500 Goals
Risks of recession, geopolitical upheaval, and a U.S. debt crisis are cause for concern, but strategists who spoke to Business Insider remain largely optimistic about stocks over the next 12 months.
Gene Goldman, chief investment officer at Cetera Investment Management, said he expects a gain of about 10% for the S&P 500 in 2024.
And Brian Price, head of investment management at Commonwealth Financial Network, said the firm expects "mid-single-digit returns" for the S&P 500, and said a traditional 60/40 portfolio has become more attractive than it has been. in some time.
Meanwhile, Jeff Buchbinder, chief equity strategist at LPL Financial, expects "high single-digit returns" in 2024.
"It won't be a straight line, as markets will see turbulence as the Federal Reserve attempts to engineer an economic soft landing," Goldman said. "A lot of volatility is expected in the market, but for long-term investors there will be opportunities."
