The S&P 500 will jump 12% to fresh record highs next year, even if a recession hits, BMO says

• The stock market will rise 12% in 2024 even if a recession materializes, according to BMO's Brian Belski.
• Belski said falling inflation, falling interest rates and a strong labor market will act as tailwinds for stock prices.
• Belski set an S&P 500 price target for the end of 2024 at 5,100 based on earnings per share of $250.

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The stock market will deliver another year of strong gains in 2024 as the second year of the bull market begins, even if an economic downturn materializes.

This is according to BMO chief investment strategist Brian Belski, who set the end of the year at 2024. S&P 500 price target of 5,100, representing a potential 12% upside from current levels.

Falling inflation, falling interest rates, a strong labor market and rising corporate profits are tailwinds that will drive further gains in the stock market next year, according to Belski.

"In our view, the performance and fundamentals of the US stock market in 2023 followed the script to lay the foundation for what we continue to believe will be a path of normality for earnings growth, valuation trends and price performance that will likely develop over the next three to five years," Belski said in a Monday note.

Belski expects a fairly "normal and typical" year for the stock market in 2024, as gains are likely to be spread more evenly across sizes and sectors, suggesting it won't be mega-cap tech stocks that drive most of the profits as they did this year.

And the bears will also have a lot to analyze next year, meaning the path to profits will be filled with doubts among the investment community.

"Unfortunately, bearish fear sells and bulls are routinely doubted and criticized. So prepare for another year of paralysis of US Federal Reserve policy analysis, the impacts of yield curve flattening, the rising unemployment and, of course, the 'Little Recession' and its impact on the market that has seemingly been around the corner for the past few years and continues," Belski said.

belsky andexpects a very mild recession to materialize next year "in name only"and if the economy once again avoids a contraction, it could send the S&P 500 even higher, to around 5,500 in its bullish scenario.

"We will continue to follow the lead of labor market trends and, unless they worsen sharply, we are simply not concerned about the recession debate at this time," Belski said.

Belski derived his 2024 S&P 500 price target by assigning a 20.4 times multiple to earnings estimates of $250 per share.

"Earnings growth offsets the lack of market performance with more normal calendar year performance," Belski said.

As for which individual sectors investors should own, Belski rated information technology and financials as overweight. Meanwhile, Belski said investors should avoid stocks found in the energy, materials and consumer staples sectors.