What a difference a year makes. Looking ahead to 2023, stock analysts predicted that an imminent recession caused by high interest rates would torpedo financial markets. On the contrary, as we approach 2024, Wall Street expects a soft landing for the US economy that will propel the market to record levels.
Most strategists also expect the Federal Reserve to turn the page on its rate hike offensive and that the S&P 500 rises in the new year.
However, like most New Year's resolutions, stock market forecasts often end up yielding to reality.
That impending recession that analysts predicted last year? It never materialized. Instead, the economy continues to grow; Inflation is declining and stocks are heading into the end of the year having posted double-digit gains.
"Eighty percent of people were wrong this year; it's pretty easy to paint yourself into a narrative corner and really convince yourself that we were going to have a recession," Art Hogan, chief market strategist at B. Riley Wealth Management, told CBS MoneyWatch. . .
Economic growth is averaging about 3% this year, compared to annualized growth of 1.8% over the past 10 years. โThe recession we had in 2023 was pretty healthy,โ Hogan joked.
Investors in the coming year will have to contend with a presidential election, as well as military conflicts in israel and Ukraineall or none of which could affect the performance of US stocks.
magnificent 7
The S&P's advance this year, which is currently up 19% year-to-date, was largely driven by the so-called Magnificent Seven, a group of large-cap technology stocks. Those companies (Alphabet, Amazon, Apple, Microsoft, Meta Platforms, Nvidia and Tesla) accounted for more than 70% of the S&P's advance in 2023. "The other 493 stocks haven't gotten a lot of love," said Hogan, who expects the stocks to industrials, healthcare and energy (the worst performing sectors) to catch up in the new year.
JPMorgan analysts offer a gloomier view. "Keep in mind that virtually all of the stock market's gains this year came from a small number of technology stocks," JPMorgan's Marko Kolanovic and Bram Kaplan wrote in a client note on Thursday. "The rest of the market was largely in a 'holding pattern,' unsure of the outlook for the economy. This led to a high concentration of the index's weight in a handful of the largest stocks, something not seen before." in 50 years."
Still, Hogan optimistically projects that the S&P 500 will end 2024 between 4,800 and 5,000, generating a return of 9.5% or 10.5% if dividends are included. And the veteran market strategist is not alone in his optimistic outlook.
Bank of America's Savita Subramanian and Deutsche Bank's Binky Chadha predict the S&P 500 will rise to 5,000 or more. Goldman Sachs Group's David Kostin believes the stock benchmark will finish at or near its previous record, and Morgan Stanley's Mike Wilson, typically known for having a bearish view on stocks, forecasts the index will close 2024 at 4,500.
Record high for the S&P 500?
BMO Capital Market also expects the S&P to hit a record high in 2024, while Societe Generale expects the stock to rise even if it doesn't surpass the previous closing peak of 4,796.56 reached in January 2022.
Amid these bullish forecasts, JPMorgan Chase is the biggest outlier: The S&P 500 will fall to 4,200 by the end of next year as household savings contract and geopolitical risks remain elevated, said Dubravko Lakos-Bujas, JPMorgan's chief global equity strategist in his bleakest report. forecast than the rest.
"Inflation has played a major role in shoring up corporate profits, which in many cases were achieved by selling fewer units at higher prices or cutting costs," Lakos-Bjas, Kolanovic and Kaplan's colleagues wrote.
To be sure, where the S&P 500 lands in 2024 will ultimately depend on the performance of the individual companies it tracks.
"Fortunately, corporate earnings will gain strength as we expect market growth to mirror earnings gains. Our base case has the S&P index reasonably valued in the 4,750 range by the end of 2024," writes the chief investment officer of Comerica, John Lynch.
In any given year, the S&P 500 ends higher than it started 68% of the time, a percentage that rises to 83% in the fourth year of a presidential cycle, "so the math works for you next year, too." Hogan offered. .
"The labor market hasn't broken yet, that's the most important piece holding things together. If the Fed remains stubborn on inflation and never cuts rates next year, that could slow economic activity." Hogan said. Another scenario that could derail the rise of the stock market would be an expansion of the Hamas-Israeli conflict include Iran, which could disrupt the global supply of petroleum products, he noted.
