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The S&P 500 (^GSPC) rose about 24% annually, and stocks ended 2023 near all-time highs.
Following the U.S. Federal Reserve’s change in policy, many investors are increasingly betting that the central bank’s next interest rate adjustment will lower interest rates, with the three major averages declining in the last two months of 2023. rose to
But despite the market’s newfound optimism at the end of the year, Wall Street doesn’t see much upside for stocks in 2024.
Given this rally, many strategists’ 2024 S&P 500 expectations already reflect limited stock gains next year. The benchmark index ends 2024 at 4,850, less than 2% higher than where the benchmark ended 2023, according to the median target of 20 Wall Street strategists tracked by Bloomberg. .
Goldman Sachs strategists have already raised their targets for 2024, reflecting the recent rally in stocks and the Fed’s dovish status. On December 18th, Goldman raised its forecast for the S&P 500 index from 4,700 to 5,100.
And next year’s goals are wide-ranging. Oppenheimer and Fundstrat are the most bullish, with a year-end target for the S&P 500 of 5,200, reflecting an increase of about 9% from the 2023 close. Meanwhile, the lowest expectation on the market for 2024 is JPMorgan’s prediction that the S&P will fall to 4,200, which would be a 12% decline for the benchmark index in 2024.
Will a recession hit and stock prices fall?
Much of the divide between bulls and bears heading into 2024 will hinge on where different companies see the economy heading next year.
Those who don’t see the economy going into a recession at all, or who think the outcome is so talked about that it won’t have a big impact on stock prices, expect the S&P 500 to reach at least 5,000 by 2024. ing. That camp includes companies like Oppenheimer. , Fundstrat, Goldman Sachs, Deutsche Bank, and Bank of America.
BMO’s Brian Belsky calls the impending recession the “Chicken Little recession,” named after the fictional character who claims the sky is falling. And it causes mass hysteria. Belsky believes that if there is a recession next year, it will be a “recession in name only.”
“We will continue to take cues from developments in the labor market, but we are not at all concerned about any talk of a recession at this point unless the situation worsens sharply,” Belsky said in his 2024 outlook. .
However, Deutsche Bank’s team is still in a recession. Analysts predict that economic growth will slow and the country will enter a “moderate recession” in the first half of this year. But for Binky Chadha, the firm’s chief U.S. equity strategist, the risk of a recession only leads to “a modest short-term decline.”
Some believe that the economic recession will continue to weigh on stock prices in 2024. Evercore ISI’s Julien Emanuel writes that stocks “first go into a recession, then rise as inflation rises.” [Fed’s 2%] Emanuel believes a recession will hit in the first half of this year before the S&P 500 can rally and reach its target of 4,750.
JPMorgan equity strategists are becoming more cautious about the potential economic downturn for stocks as they forecast the benchmark average’s 2024 closing price. At 4,200.
“Without rapid Fed easing, we expect a more difficult macro environment for stocks next year, including softening consumer trends, with a near reversal in investor position and sentiment,” Dubravko said. JPMorgan equity strategists led by Lakos-Bujas said in their team’s 2024 outlook. November 29th.
Lakos Bujas’ point about Fed easing is an important point in the bulls vs. bears debate. At a high level, there are two fundamental reasons for the Fed to cut rates, and we currently expect it to cut rates three times in 2024. The Fed will cut interest rates if the economy slows significantly to ease financial conditions and preserve public finances.
Alternatively, the Fed could cut interest rates as inflation falls toward the central bank’s 2% target faster than expected. This is the scenario Goldman Sachs cited when it raised its outlook for the stock in mid-December.
“Resilient growth and lower interest rates should benefit stocks with weak balance sheets, especially those sensitive to economic growth,” David Kostin, chief U.S. equity strategist at Goldman Sachs, said in a strategy note. said.
Historically, whether a recession is in store has played a key role in whether stock prices rise or fall after the first rate cut. If a recession occurs within 12 months of the Fed’s first rate cut, stock prices typically fall, according to a Goldman Sachs graph.
Will we be talking about the Magnificent Seven again?
Well-documented aspects of the stock market rally in 2023 include Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA) — drove most of the market’s gains. But the gains widened in the last two months of the year, and many strategists expect the market to remain broad into 2024.
The head of Bank of America said, “We predict that the S&P 500 index will reach a new all-time high in 2024, and our year-end target is 5,000. “We look forward to broader leadership.” In a December client note, Savita Subramanian discussed U.S. stocks and quantitative strategies.
Tom Lee, founder of Fundstrat, lists technology stocks and FAANG stocks as his top three sectors for 2024. But after a strong rally in 2023, Lee doesn’t think technology stocks will continue to dominate next year.
“Do I think FAANG has enough upside to outperform small-cap stocks and multiple expansions? I don’t think so,” Lee said on a Dec. 7 Zoom call about 2024 outlook. , “I think small-cap stocks could be the next 50% rally.” “The year is easily up. And financials could be up 30%…When it comes to positioning, no one owns financials and no one is really long small-cap stocks. On the upside. There’s a lot of room.”
Goldman Sachs’ Mr. Kostin also praised small-cap stocks in his recent 2024 outlook.
“An environment of lower interest rates and improving economic growth expectations has historically been a tailwind for small-cap stocks, but they have recently been trading at lower valuations,” Kostin said.
“This is likely to open the door to greater participation in traditional growth areas (particularly technology)…Given the outperformance of growth, investors will become more cautious and thematic ( (not just liquidity and momentum), stable growth, and even dividends in growth areas.”
“We believe it is very likely that the ‘Magnificent 7’ will not be as unified in terms of performance trends in 2024,” Belsky said in his 2024 outlook. “For example, company-specific fundamentals vary widely, and recent price performance trends in the fourth quarter indicate that performance in 2024 is likely to be increasingly diverse.”
“This is likely to open the door to increased participation in traditional growth sectors (particularly technology sectors)…Given the outperformance of growth, investors will become more cautious and (liquidity and momentum) as well as) stable growth and even dividends in growth areas.”
Josh Schafer is a reporter for Yahoo Finance.
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