Stock Market Forecast For 2024

The S&P 500 generated an impressive 26.29% total return in 2023, recovering from an 18.11% decline in 2022. Looking ahead to 2024, investors are optimistic – the same macroeconomic tailwinds that fueled the market rally of values ​​in 2023 will propel the S&P 500 to new all-time highs. maximums in 2024.

Despite ongoing concerns about inflation, interest rates, debt levels, and political dysfunction in Washington, D.C., investors are optimistic that the Federal Reserve will achieve a soft landing for the U.S. economy and will soon pass from interest rate hikes to cuts.

Falling interest rates and earnings growth could be a bullish combination for stocks. However, some analysts are concerned about inflated valuations in the technology sector, and the 2024 US presidential election could create significant volatility in the market.

Stock Market Predictions for 2024

He S&P 500 He closed 2023 with a lot of momentum after re-entering bull market territory in June. The index ushered in the new year with a nine-week winning streak that put it within striking distance of its first all-time high since December 2021.

From 1921 to 2023, the average S&P 500 bull market has generated a return of 157% and lasted more than four years, according to Sam Stovall, chief investment strategist at CFRA Research. That pattern suggests the stock market rally could continue for the foreseeable future.

One of the best-performing investment themes in the current bull market has been artificial intelligence technology. Several of the best-performing tech stocks of 2023 were AI Tech Stocksincluding artificial intelligence chip maker Nvidia.

James Demmert, chief investment officer at Main Street Research, says the AI-driven bull market could be just beginning.

“The recent market strength is indicative of a new and very real AI-led bull market and business cycle that could last a decade thanks to productivity growth and AI tailwinds,” Denmert says.

"Experienced investors know that this type of broad-based strength across sectors and capitalizations is reminiscent of the first year of previous bull markets, which has a long way to go, with inevitable corrections along the way."

Monetary policy outlook

The Federal Reserve made significant progress in reducing inflation in 2023, but the central bank still has work to do in 2024.

He personal consumption expenditure price index increased 2.6% year-on-year in November, compared to 2.9% in October.

Core PCE, which excludes volatile food and energy prices and is the Fed's preferred measure of inflation, rose 3.2% in November, still well above the Fed's long-term target of the 2%.

Federal Reserve Projections

In its latest long-term economic projections released in December, the Federal Open Market Committee projects core PCE inflation of 2.4% and GDP growth of 1.4% in 2024. FOMC members also anticipate just three cuts of interest rates by the end of 2024.

Higher interest rates increase borrowing costs for consumers and businesses, weighing on economic growth and reducing profits. Investors and analysts generally view rate cuts as positive for stock prices, as long as the cuts are not accompanied by a Economic recession.

Federal Reserve officials have downplayed the possibility of an imminent rate cut. But many investors remain optimistic that the FOMC will cut rates soon, in 2024, and more aggressively than expected. The bond market is pricing in a 70% chance that the Federal Reserve will deliver its first interest rate cut in March, according to CME Group.

The market sees a greater than 80% probability of at least five rate cuts from current levels by the end of 2024.

Investor optimism about the economic outlook has improved dramatically from a year ago, but there is still a risk that the Fed's tightening of policy could tip the economy into a recession in 2024. Indeed, the probability model recession forecast of the New York Federal Reserve estimates that there is still 62.9%. probability of a recession in the United States in the next 12 months.

Market sectors to take into account in 2024

Analysts project 11.5% earnings growth and 5.5% revenue growth for S&P 500 companies in 2024.

Fortunately, analysts see positive profit and revenue growth for all eleven market sectors this year.

He Health sector It is expected to deliver a market-leading 17.8% earnings growth in 2024, while the information technology sector It is expected to lead the way with 9.3% revenue growth. At the other end of the growth spectrum, analysts forecast 2024 energy sector earnings growth of just 2.9% and revenue growth of just 1.9%.

Within the technology sector, many investors will pay special attention to the mega-cap stocks called “Magnificent Seven” that led the rise of the S&P 500 in 2023: Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL). , Microsoft (MSFT), MetaPlataformas (META), Tesla (TSLA) and Nvidia (NVDA).

Nigel Green, founder and CEO of deVere Group, says many investors are questioning the valuations of the Magnificent Seven after their strong results in 2023.

"But while uncertainties remain and there are compelling reasons to believe these stocks may not surpass last year's highs, we expect them to continue to perform well, capturing the attention of global investors in 2024," Green says.

Those seven stocks may see a correction in early 2024, but Green says investors would be foolish to abandon them given their impressive businesses.

“Their mature market positions, commitment to innovation, resilience in economic downturns, and alignment with global megatrends position them for sustained success in 2024 and beyond,” he says.

The energy sector has the highest percentage of analyst “buy” ratings heading into 2024, at 64%, followed by communication services 62% and health care 59%. He basic consumer sector It has the lowest percentage of analyst "buy" ratings at just 47%.

How stocks behave in election years

In the past Election years in the United StatesStock market returns have been lackluster.

Since 1952, the S&P 500 has averaged only a 7% gain during presidential election years, below its average annual total return of about 10% in a typical year.

Fortunately, the S&P 500 has delivered positive returns during every presidential reelection year in which an incumbent president is on the ballot since 1952. In fact, it has averaged a 12.2% gain during those reelection years.

Since 1973, the financial services and energy sectors have been the best-performing S&P 500 sectors during presidential election years, while the information technology and materials sectors have been the worst performers.

How to invest in 2024

Growth stocks and technology stocks performed extremely well in 2023 as anticipation of a Fed turnaround grew.

Investors expecting a soft landing for the economy and aggressive rate cuts in 2024 may consider leaning toward these two themes. Likewise, those concerned about persistent inflation and a possible recession in 2024 may consider increasing their exposure to defensive market sectors with relatively stable earnings, such as the healthcare, utilities and consumer staples sectors.

From a valuation perspective, the S&P 500's forward price-to-earnings ratio of 19.3 is currently above its 10-year average of 17.6. This premium valuation suggests that S&P 500 companies would need to deliver impressive earnings growth this year for the stock market to reach new all-time highs.

The information technology sector has the highest Forward PE at 26.7, while the energy sector has the lowest at 10.8.

Jeffrey Buchbinder, chief equity strategist at LPL Financial, says investors should expect stock market volatility in 2024, ahead of the November election.

“LPL's Strategic and Tactical Asset Allocation Committee (STAAC) recommends a neutral tactical allocation to equities, with a modest overweight to cash-financed fixed income,” Buchbinder says.

LPL Recommends Large Cap Growth Stocks value stocks heading to 2024.

"STAAC believes that large-cap growth-style stocks can benefit from lower inflation and stabilization of interest rates in the medium term," Buchbinder says.

Additionally, he says growth stocks may have superior earnings opportunities relative to the rest of the market in a slowing economy.

Analysts are generally optimistic about the outlook for stock prices in 2024. The analyst consensus price target for the S&P 500 is 5,090, suggesting approximately 8.5% upside from current levels. current.