Wall Street’s stock market upgrades now turn into downgrades

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RBC Capital’s Lori Calvasina on Monday became the latest strategist to raise her 2024 price target for the S&P 500, raising her estimate to 5,150 from 5,000 yen.

But by raising expectations for this year’s benchmark index, Calvasina actually offered a more benign stock outlook than her team’s in November 2023.

“When we introduced the 5,000-person goal in mid-November, that goal was an approximately 10% increase from then-current levels,” Calvasina wrote. “Today, our price target of 5,150 represents an 8% upside compared to the index’s December 2023 closing price, so it’s safe to say that our enthusiasm has actually diminished a bit.”

The S&P 500 closed at 4,764 on Monday.

The company’s “high but low” outlook centers on market sentiment and the enthusiasm with which investors react to the Federal Reserve’s tone and outlook in December.

Central banks’ predictions that interest rates will fall more aggressively this year have triggered gains across all asset classes, with the 10-year Treasury yield falling below 4% and the Dow Jones Industrial Average hitting a record high.

Then in 2024, stocks stumbled out of the gate, posting their worst yearly start since 2016.

Wall Street strategists went so far as to call the market’s early struggles a “hangover” for 2023, when the S&P 500 rose more than 20% and the Nasdaq rose more than 40%.

RBC cites closely tracked sentiment research from the American Association of Retail Investors, saying the recent rise in bullish sentiment means the market is likely to remain flat over the next three months and rise nearly 6% over the next 12 months. It is pointed out that this shows that. This metric suggests the S&P 500 will rise nearly 10% over the next year.

And while the company notes that the metric is “rapidly volatile,” the call helps focus on key questions investors have been facing over the past few months.

In other words, are the markets trying to predict, react to, or impose some kind of outcome on the Fed?

US Federal Reserve Chairman Jerome Powell attends a press conference on December 13, 2023 in Washington, DC, USA. On Wednesday, the Federal Reserve kept interest rates unchanged at 5.25% to 5.5%, a 22-year high, in response to inflation. The economy continues to cool, signaling the end of the rate hike cycle and the possibility of rate cuts next year. (Photo provided by Liu Jie/Xinhua via Getty Images) — Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, December 13, 2023. (Liu Jie/Xinhua via Getty Images) (Xinhua News Agency, via Getty Images)

All else being equal, lower interest rates are good for stocks. According to this logic, the market rally is largely in anticipation of lower interest rates in 2024.

The idea is that the Fed’s December outlook only solidified investors’ belief that their bet was right all along.

The old cliché that the market buys rumors and sells news may also help explain the slight pullback seen since the December high. The momentum in this trade disappeared when the Fed announced interest rate cuts.