13.8 C
New York
Monday, March 4, 2024

Stocks closed 2023 near record highs. Here’s what Wall Street thinks is coming in 2024.

Stocks closed 2023 near record highs. Here’s what Wall Street thinks is coming in 2024.


Actions completed 2023 near all-time highs with the S&P 500 (^GSPC) gaining nearly 24% over the year.

The three big averages ripped higher during the last two months of 2023 after a pivot of the Federal Reserve has many investors are betting more and more that the central bank’s next interest rate adjustment will result in lower rates.

But despite market conditions a new optimism to end year, Wall Street doesn’t see much upside potential for stocks in 2024.

Given this rebound, many S&P 500 strategists’ forecasts for 2024 already reflect limited upside for stocks next year. The median target among 20 Wall Street strategists tracked by Bloomberg shows the benchmark ending 2024 at 4,850, less than 2% higher than the 2023 closing level.

Goldman Sachs strategists have already raised their 2024 target to reflect the recent rise in stocks and the shift to a more dovish Fed. Goldman revised upwards its projection for the S&P 500 from 4,700 to 5,100 on December 18.

And the range of goals for next year is wide. Oppenheimer and Fundstrat are the most optimisticwith a year-end target of 5,200 for the S&P 500, reflecting about a 9% upside from the 2023 close. Meanwhile, the Street’s lowest call for 2024 is JPMorgan’s prediction that the S&P would fall to 4,200, which would mark a 12% decline for the benchmark in 2024.

Will the recession hit and cause stocks to fall?

Much of the difference between the rises and falls heading into 2024 rests on the outlook of individual companies. the economy recovered next year.

Those who believe the economy will not enter a recession at all, or think the outcome has been so talked about that it won’t have much impact on stocks, predict the S&P 500 will reach at least 5,000 in 2024. This camp includes companies like Oppenheimer. , Fundstrat, Goldman Sachs, Deutsche Bank and Bank of America.

BMO’s Brian Belski calls any impending recession the “chicken little recession,” a reference to the fictional character. who insists that the sky is falling and causes collective hysteria on this subject. Belski believes that if there is a slowdown next year, it will only be a “recession in name.”

“We will continue to take cues from labor market trends and, unless they get worse, we are simply not concerned about the recession debate at this point,” he added. Belski wrote in his 2024 outlook.

The Deutsche Bank team, however, remains in the recession camp. Analysts predict a slowdown in economic growth and “a slight recession” in the first half of the year. But Binky Chadha, the firm’s chief US equity strategist, said recession risks would only lead to a “modest and short-lived selloff.”

Others still see a recession weighing on stocks in 2024. Evercore ISI’s Julian Emanuel wrote that stocks will be “in recession first, then higher as inflation rises to the level (2% of Fed). ” Emanuel thinks the recession will come in the first half before a rally takes the S&P 500 to its target of 4,750 points.

JPMorgan equity strategists are even more cautious about what a slowdown could mean for stocks as they project the benchmark average to close 2024. at 4,200.

“Absent rapid easing from the Fed, we expect a more challenging macro backdrop for stocks next year, with consumer trends slowing at a time when investor positioning and sentiment are shifting. are essentially inverted,” said JPMorgan equity strategists led by Dubravko Lakos-Bujas. wrote in the team’s outlook for 2024 in November 29.

Lakos-Bujas’ point regarding Fed easing is a key sticking point in the debate between bulls and bears. At a high level, there are two fundamental reasons why the Fed would cut interest rates: which he currently plans to do three times in 2024. The Fed would cut rates if the economy slowed significantly in order to ease financial conditions and help keep it afloat.

Or the Fed would cut rates because inflation is falling faster than expected toward the central bank’s 2% target. This is the scenario mentioned by Goldman Sachs when it raised its stock market outlook in mid-December.

“Resilient growth and lower rates should benefit stocks with weaker balance sheets, particularly those that are sensitive to economic growth,” David Kostin, chief U.S. equity strategist at Goldman Sachs, wrote in a note strategic.

In the past, the likelihood of a recession or not has played a key role in whether stocks rally or fall after the first interest rate cut. A chart from Goldman Sachs shows that stocks generally fall if a recession occurs within 12 months of the Fed’s first rate cut.

Stocks closed 2023 near record highs. Here’s what Wall Street thinks is coming in 2024.

In three of the last eight Fed interest rate cut cycles, a recession occurred within 12 months of the first cut. The chart above shows that when a recession occurs after a rate cut (gray line), stocks perform worse than if the economy remained on solid footing after the first cut. (Goldman Sachs Global Investment Research)

Will it be the Magnificent Seven again?

A well-documented aspect of the 2023 stock market rally This is how seven major technology stocks – Apple (AAPL), the alphabet (GOOGLE, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), You’re here (TSLA), and Nvidia (NVDA) – generated most of the market’s gains. But during the last two months of the year, the gathering expanded, and many strategists predict the market scale to continue into 2024.

“We forecast an all-time high for the S&P 500 in 2024, with a year-end target of 5,000 points. But unlike this year where the Magnificent 7 did 70% of the work, we expect broader leadership “said the president of Bank of America. U.S. equities and quantitative strategy, Savita Subramanian wrote in a note to clients in December.

Fundstrat founder Tom Lee places tech stocks and FAANG among his top three sectors for 2024. But after a massive rally in 2023, Lee doesn’t see tech leading the way again next year.

“Do I think there is enough juice in FAANG from earnings and multiple expansion to outperform small caps? I don’t think so,” Lee said during his 2024 Outlook Zoom call on December 7. “I think small caps could easily be up 50% next year. And financials could be up 30%… As far as positioning goes, no one owns financials and no one really has positions long on small caps. There’s a lot of upside potential.”

Goldman Sachs’ Kostin also praised small caps in his recent 2024 outlook.

“An environment of falling interest rates and improving expectations for economic growth has historically been favorable for small caps, which have recently been trading at depressed valuations,” Kostin wrote.

“This likely opens the door for increased participation in traditional growth areas (particularly in technology)… Given growth’s outperformance, we believe investors should be much more cautious and focus on themes (not just liquidity or momentum), stable growth, and even dividends within growth sectors.

“We believe there is a very good chance that the ‘Magnificent 7’ will not be as unified in terms of performance trends in 2024,” Belski wrote in his 2024 outlook. “For example, the fundamentals specific to Each company is very different, with recent trends in Q4 price performance pointing to increasingly varied performance in 2024.”

“This likely opens the door for increased participation in traditional growth areas (particularly in technology)… Given growth’s outperformance, we believe investors should be much more cautious and focus on themes (not just liquidity or momentum), stable growth, and even dividends within growth sectors.

Much of the difference between increases and decreases through 2024 rests on the direction different companies see the economy taking next year.  (Getty Images)Much of the difference between increases and decreases through 2024 rests on the direction different companies see the economy taking next year.  (Getty Images)

Much of the difference between increases and decreases through 2024 rests on the direction different companies see the economy taking next year. (Getty Images) (Malta Mueller via Getty Images)

Josh Schafer is a reporter for Yahoo Finance.

Click here to know the latest technology news that will impact the stock market.

Read the latest financial and business news from Yahoo Finance



Source link

Latest stories