by Last November and December, veteran stock market watchers predicted that 2023 would be a year to forget. They saw high inflation, a looming global recession and rising interest rates as undermining household purchasing power and putting a dent in corporate profits. For investors, they predicted paltry profits and one of the S&P 500’s worst performances in the past 15 years.
But market professionals only partially understood the story. While interest rates rose to a nearly two-decade high, the S&P 500 surprisingly soared to a near-record level. Driven in part by a rally in the mega-cap tech stocks of the so-called Magnificent Seven, it is up nearly 25 percent this year through Thursday’s close, shaking off a banking crisis, wars in the Middle East and Ukraine, and a slowdown in the economy. growth in China’s economy.
Crypto managed to do even better. Bitcoin bulls have put aside a legal crackdown on the industry’s biggest players to fuel an impressive rally. The digital token has gained more than 150 percent this year, making it one of the best-performing risk assets.
“223 was a big year for contrarians,” David Bahnsen, founder and chief investment officer of Bahnsen Group, a wealth management firm, told DealBook. “A year ago there were macroeconomic concerns that didn’t arise, and there were financial and valuation concerns that didn’t arise. And it’s particularly ironic that it wasn’t, because in reality everything investors feared a year ago just got worse.”
Wall Street’s outlook for 2024 is more optimistic. Analysts see lower borrowing costs, a soft landing (i.e. an economic slowdown that avoids a recession) and A pretty good year for investors.
But if 2023 taught market professionals anything, it’s that forecasts can go out of date pretty quickly. A number of things could disrupt markets over the next year: inflation will rise again, Or not, It is an important factor to take into account. And there are wild cards, too, as voters are expected to go to the polls. in more than 50 countries next yearincluding United States
Here’s how Wall Street sees 2024 developing:
The case of the bull
The median forecast for the end of 2024 for the S&P 500 is 5,068, according to FactSet. Such a level would imply an annualized gain of about 6 percent by 2024.
Bank of America equity strategists, led by Savita Subramanian, are among those in the bullish camp. In their annual forecast, they said the S&P 500 would likely close next year at 5,000, helped by a sort of “Goldilocks” scenario of falling prices and rising corporate profits.
Goldman Sachs is even more optimistic. Your analysts updated its 2024 year-end call on the S&P 500 at 5,100. They made the change after the Federal Reserve’s surprise statement on December 13 that the equivalent of three interest rate cuts were on the table for next year. Lower borrowing costs tend to give consumers and businesses more purchasing power, which could help U.S. companies’ bottom lines.
Another catalyst: This year, investors put much more money into safe, interest-rate-sensitive assets, such as money market funds, than into stocks. That logic could be reversed in 2024. “As rates begin to fall, investors may rotate some of their cash holdings into stocks,” David Kostin, chief U.S. equity strategist at Goldman Sachs, said in a recent note to investors. .
The case of the bear
On the more pessimistic side is JPMorgan Chase, which has a target of 4,200 by year-end 2024. Its team of analysts, led by Marko Kolanovic, the bank’s chief global market strategist, sees a struggling consumer with depleted savings, a potential recession and geopolitical uncertainty that could drive up commodity prices, such as oil, and reduce global growth.
Next year will be “another challenging year for market participants.” Kolanovic said. (Most strategists are even more pessimistic about Europe, where recession fears are most acute. On the other hand, stocks in Asia could show another year of solid growth, especially in India and Japan, say Wall Street analysts.)
Lee Ferridge, head of North American multi-asset strategy at State Street Global Markets, is more optimistic about the American consumer, but points to a different challenge for investors. “If I’m right, the economy is still stronger. But that is a double-edged sword for stocks,” he stated. The prospect of strong consumer and business spending poses an inflation risk that could force the Federal Reserve to keep rates higher longer, and even suspend cuts, he said. “That’s going to be a headwind for the stock.”
“I wouldn’t be surprised to see a pretty flat year next year,” he added. “If we go up, it will be the Magnificent Seven who will be the drivers again.”
The wild card: politics and elections
The presidential elections do not kill demonstrations, according to LPL Financial market analysis which analyzes the last 71 years. In that period, the S&P rose, on average, 7 percent during U.S. presidential election years. (The market tends to do even better in a re-election year, the financial advisory firm notes.)
Even with some unusual questions swirling about next year’s race: Will a mountain of legal problems derail Republican front-runner Donald Trump? Will the drop in President Biden’s popularity ratings open the door to a strong external challenger? Will the election result be disputed, causing a constitutional crisis? – that’s unlikely to add much volatility to markets, Wall Street professionals say.
“The election will not be a story in the stock market until November 2024, for the simple reason that the stock market will not know who will win the election until November 2024,” Bahnsen said.
His advice: Don’t even try to calculate the impact of the elections on the markets.
