The S&P 500 is up 15.7% this year (as of Dec 7, 2023) due to cooling in inflation, a less-hawkish Fed, an AI boom, tech rally and an improvement in the corporate earnings. As we are currently at the last leg of 2023, it is far enough to think about what lies ahead of the S&P 500 in 2024. Bullish sentiment had started to recover from mid-November. More than 43% of respondents said they were bullish on stocks over the next six months.
Fundstrat’s head of research Tom Lee projects the S&P 500 benchmark index will end 2024 at 5,200 as slumping inflation leads to easing financial conditions and the U.S. economy once again will be able to avoid recession, as quoted on Yahoo Finance. This marks a 9% uptick from 4,585.59 recorded on Dec 7, 2023.
Deutsche Bank and BMO Capital expect the index to hit 5,100-mark by the end of next year. Moreover, Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets and Bank of America’s Savita Subramanian believe that the S&P 500 may hit 5,000 by the end of 2024, as quoted on MarketWatch, published on Morningstar.
Let’s delve a little deeper.
Analytical Basis for Bullish Projections
Lee thinks that a soft inflation data points, a less-hawkish or dovish Fed and a still-growing U.S. economy will be the key highlights in 2024. RBC Capital suggests that the market’s valuation could remain high. They believe that a decrease in inflation rates will play a crucial role in supporting the high valuation.
Presidential Election Year Influence
The 2024 U.S. presidential election is seen as a potential cause of uncertainty for the stock market. RBC notes that, on average, the S&P 500 tends to grow by about 7.5% during presidential election years, which is less than its typical growth rate. This suggests that election years bring a level of uncertainty that can affect market performance.
ETFs in Focus
Against this upbeat backdrop, investors may track S&P 500 ETFs like Vanguard S&P 500 ETF VOO, iShares Core S&P 500 ETF IVV and SPDR S&P 500 ETF Trust SPY. Investors can also play the growth part of the index with SPDR Portfolio S&P 500 Growth ETF SPYG and the value part of the index with SPDR Portfolio S&P 500 Value ETF SPYV.
SPDR Portfolio S&P 500 High Dividend ETF Fund SPYD is a good bet for the dividend plays of the index. Investors can also bet on the leveraged S&P 500 ETFs like Direxion Daily S&P 500 Bull 3X Shares SPXL, ProShares Ultra S&P500 SSO and ProShares UltraPro S&P500 UPRO if the index is on an uptrend.
Any Wall of Worry?
Although a few research houses are bullish the S&P 500’s rally in 2024, likelihood of U.S. recession or slowdown, dearth of rapid Fed policy easing, uncertainty regarding U.S. presidential election in 2024, any new political or geopolitical crisis may complicate things. JPMorgan says S&P 500 will fall next year amid challenging macro backdrop. J.P. Morgan target is 4,200 while Morgan Stanley and Goldman Sachs expect the index to end 2024 at 4,500 and 4,700 level.
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