- Analysts expect the bull market to resume in 2024.
- Inflation and interest rates will likely remain the two biggest market catalysts.
- Bloated Big Tech valuations could limit additional upside for the Nasdaq.
The S&P 500’s early-year rally faded in the second half of 2023. But analysts remain optimistic that the stock market could rise to new all-time highs in 2024.Thank you for reading this post, don't forget to subscribe!
Despite ongoing concerns over inflation, rising interest rates, slow economic growth, and uncertainty in Washington over the government shutdown and House Speaker vacancy, analysts expect the S&P 500 to reach its peak in 2024 in anticipation of the Federal Reserve’s pivot from interest rates. The bull market will resume the rally. Increase to cut rates.
Meanwhile, if the US economy can achieve a soft landing, analysts are predicting double-digit earnings growth from S&P 500 companies in the coming year and said there will be plenty of opportunities for investors in 2024.
Unfortunately, while the US economic outlook improved significantly in 2023, there are still warning signs of a recession in 2024.
Additionally, some market experts have raised concerns over inflated valuations of Big Tech companies, leading to a market rally in 2023.
The 2024 US presidential election could cause stock market volatility, especially given how unpopular both leading candidates are among US voters. Additionally, sticky inflation could force the Federal Reserve to keep interest rates at a 22-year high longer than anticipated, potentially pressuring growth stock valuations.
Here’s what investors can expect in 2024 and what headlines they should keep an eye on to maximize their investment returns.
2024 stock market forecast
The S&P 500 is on track to end 2023 with a gain of more than 14% after posting a loss of more than 18% in 2022. Since the S&P 500 was launched in 1957, at no time has the index fallen by more than 18% in a calendar year. This was followed by continuous profits for at least two years.
Analysts expect market fundamentals to improve in 2024. The S&P 500 entered bull market territory in June 2023 after gaining more than 20% from the October 2022 low. According to LPL Research, since World War II, the average S&P 500 bull market has lasted more than five years.
Jeffrey Buchbinder, chief equity strategist at LPL Financial, said history suggests 2024 could be a good year for stocks.
“The average gain of 12.9% in the second year of the bull market suggests stocks may be poised to add to this year’s solid gains into 2024,” Buchbinder said.
He said that even a mild recession will not have as bad an impact on the stock market as some investors fear.
“We think this bull market still has a long way to go and won’t be derailed by a (potentially) mild, short recession next year,” Buchbinder said.
Analysts forecast 12.2% earnings growth and 5.6% revenue growth for S&P 500 companies in 2024. The communication services sector is expected to lead with 18% revenue growth, while the information technology sector is expected to generate a market-leading 9.2% revenue. Development in 2024.
At the other end of the growth spectrum, analysts predict energy sector earnings will grow just 2.4% in 2024 and revenues will grow just 0.9%. Fortunately, analysts see positive earnings and revenue growth for every market segment in 2024.
The US presidential election cycle in 2024 also bodes well for the stock market, as the S&P 500 typically rises in the fourth year of a new US president’s term.
Fed’s monetary policy
The Federal Reserve has significantly reduced inflation in 2023. But the central bank still has a long way to go to get inflation back to its 2% target in 2024.
The personal consumption expenditure price index rose 3.5% year on year in August, down from a peak of 7% in June 2022. Core PCE, which excludes volatile food and energy prices and is the Fed’s preferred inflation measure, was up 3.9%. On an annualized basis in August, nearly double the Fed’s 2% target.
In its latest long-term economic projections released in September, the Federal Open Market Committee projected core PCE inflation to be 2.6% and GDP growth to be 1.5% in 2024. FOMC members may consider another interest rate hike along with a rate cut before the end of 2023. End of 2024.
Investors seem to be far more optimistic that the Fed will not need to be as aggressive with its monetary policy measures. According to CME Group, the bond market is pricing in only a 20% chance that the Fed will need to make at least one more rate hike by the end of 2023. Looking ahead to 2024, the market sees a greater than 60% chance of a rate cut by June 2024.
With housing and energy prices rising, Comerica Bank chief economist Bill Adams said the Fed would be forced to make another rate hike in 2024.
“Comerica estimates that the Fed will aim to increase fed funds by the last quarter percentage point by the end of the year, but it will be a close call – financial markets are pricing in that increase as almost likely. Either way, the Fed will aim to raise its funds rate by 2024.” “We may be headed for a rate cut by the mid-20s as underlying inflation pressures normalize,” Adams said.
2024 outlook for stocks
Analysts are generally optimistic about the outlook for 2024, but the environment of slow economic growth and historically high interest rates is tougher for some types of stocks than others.
Wall Street analysts forecast S&P 500 earnings growth to jump from just 1.1% in 2023 to 8.6% in the first quarter of 2024 and 12.2% for the full year. On the revenue front, analysts are calling for growth to increase from 2.4% in the first quarter to 4.7% in 2023 and 5.6% for the full year in 2024.
The current consensus 12-month price target for the S&P 500 is 5,148. If the S&P 500 achieves that goal in 2024, it will surpass its current all-time high of 4,796 from January 2022.
The blue-chip Dow Jones Industrial Average has lagged significantly in 2023 as investors have shifted away from defensive investments in favor of higher-risk assets. However, if the US economy heads into a recession in 2024, investors may seek safety in Dow stalwarts like Apple (AAPL), Microsoft (MSFT) and UnitedHealth (UNH).
Value stocks also outperform growth stocks during periods of higher interest rates, although this trend reversed in 2023. Looking ahead into 2024, the Dow Jones is trading about 9% below its all-time high of 36,952 in January 2022.
If inflation falls to a level where the Federal Reserve could cut interest rates earlier than expected in 2024, tech stocks could continue their momentum into 2023. The tech-heavy Nasdaq Composite is set to more than double the S&P 500’s gains in 2023 as topics like artificial intelligence, cloud computing and high-end computer hardware regain popularity among investors.
Over the past decade, the Nasdaq has significantly outperformed the S&P 500 and the Dow Jones Industrial Average. Heading into 2024, the Nasdaq Composite is down about 16% from its all-time high of 16,212 in November 2021.
Are any specific sectors expected to outperform in 2024?
Based on average analyst estimates, the real estate sector is likely to grow the most over the next 12 months at 25.3%, followed by the consumer discretionary sector at 24.8%. The energy sector is expected to grow the least at 7.3%.
However, just because the energy sector could take a breather in 2024 doesn’t mean analysts are turning bearish on energy stocks as long-term investments. The energy sector currently has the highest percentage of analyst “buy” ratings of any sector at 64%. The consumer staples sector has the lowest percentage of “Buy” ratings at 45%.
The high-flying technology sector is likely to get a lot of investor attention in 2024 as the debate rages between tech sector bulls focused on long-term growth and bears focused on valuation. The technology sector’s forward earnings multiple of 24.2 is currently the highest of any sector, while the energy and financial sectors’ forward earnings multiple are the lowest at 12 and 13.2 respectively.
David Bahnsen, chief investment officer at The Bahnsen Group, said many megacap tech companies are trading at unsustainable valuations in 2024.
“Our message to investors is to avoid index investing and the momentum trading of Big Tech,” Bahnsen said.
He advises long-term investors to prefer stocks whose dividends are growing.
“If the markets are down, you’re reinvesting the dividends at lower prices, exponentially increasing the benefits of compound interest over time,” Bahnsen said.
The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is an option for investors looking for a diversified way to invest in companies that consistently grow their dividends. The NOBL Fund invests in 67 dividend aristocrats that have increased their dividends for at least 25 years, including Dover (DOV), Procter & Gamble (PG) and Genuine Parts (GPC).
Frequently Asked Questions (FAQ)
What should investors be wary of in 2024?
The biggest fundamental risks to the stock market in 2024 are the possibility of increased inflation, tighter monetary policy and slower economic growth leading to a US recession. However, the US presidential election and other geopolitical risks, such as the dispute between China and Taiwan, could also cause volatility in the markets.
Will 2024 be a good year for the stock market?
It is difficult to predict how the stock market will perform on a year-to-year basis, but analysts are generally optimistic about the outlook for 2024. The average 12-month analyst price target for the S&P 500 is $5,148, or about 15% higher. current level.
Should I adjust my investment strategy in 2024?
Each investor’s portfolio strategy should be unique based on their investment time frame, personal financial goals and risk tolerance. Economists generally expect an environment of declining inflation, slower economic growth and monetary policy easing in 2024, with environmental analysts predicting this will benefit the real estate and consumer discretionary sectors.