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2024 Stock Market Outlook

As we turn our attention to 2024, the stock market presents a complex picture, blending optimism with caution. Despite a robust performance in the latter part of the previous year, the market's future is not without challenges. A key factor in the current optimism is the anticipation of policy shifts by the Federal Reserve. 


However, contrary to the expectations of an immediate easing, J.P. Morgan Research predicts the Federal Reserve will only start cutting rates in the third quarter of 2024, continuing quantitative tightening throughout the year. This approach is more conservative than the market's initial expectations of relaxed monetary policies.


In terms of the S&P 500, a modest earnings growth of 2–3% is forecasted, with a target of 4,200, yet this comes with a downside bias. This tempered outlook reflects the anticipation of a challenging macro environment for stocks in 2024, marked by lukewarm earnings growth and geopolitical tensions. These factors, combined with elevated equity volatility, paint a picture of a market braced for potential upheavals.


Geopolitical risks, particularly with ongoing conflicts and numerous national elections, including in the U.S., are expected to contribute to higher equity volatility in 2024 than in 2023. This uncertain climate underscores the importance of cautious and well-informed investment strategies.


Despite the global economy exceeding expectations in 2023, a slowdown is forecasted by the end of 2024, with an end to the global expansion anticipated by mid-2025. This slowing growth, alongside persistent inflation, suggests that central banks will maintain higher-for-longer policy stances, affecting market dynamics.


2024 Market Forecast: Discover Wall Street's Predictions for Stock Trends


Economic Outlook 2024: Image showing market going upwards

Wall Street's forecasts for 2024 indicate a cautious optimism following the S&P 500's impressive 10% rally in the fourth quarter. According to the CNBC Strategist Survey, the consensus target for the S&P 500 is 4,881 by year-end, marking a modest 3% increase from the recent close of 4,719.19.


The market's recent surge is attributed to expectations of a more lenient policy from the Federal Reserve. This sentiment was reinforced after the Fed's decision to maintain its benchmark rate, with indications of upcoming rate cuts in 2024.


Amid these developments, CFRA Research's chief investment strategist Sam Stovall commented, “The good news is that after the S&P 500 recovered all that was lost in the prior bear market, none of these subsequent declines became a new bear market.” He added, “The bad news, however, is that this post-[all-time-high] advance might be very short-lived, since four times the market stumbled almost immediately after recovering its prior bear market loss.”


Contrasting this cautious outlook, Goldman Sachs’ David Kostin raised his 2024 forecast for the S&P 500 to 5,100, an 8% increase from the recent close, stating, “Lifting our 12-month S&P 500 target to 5100 as inflation falls, the Fed turns dovish, and real yields plunge.”

This mix of forecasts highlights a cautious yet hopeful outlook for the stock market in 2024, balancing the recent rally's momentum with the realities of economic and policy challenges ahead.


Most Bullish Stocks

Even with Goldman's increased forecast, other strategists on Wall Street hold even more bullish views. John Stoltzfus, Chief Investment Strategist at Oppenheimer Asset Management, anticipates that stocks could rally over 10% to 5,200 next year.


His prediction is based on the continued growth in earnings and revenue during what he refers to as a “year of transition” for stocks, as he expects the Federal Reserve to adopt a more relaxed stance on interest rates.


Stoltzfus expressed his outlook last week, stating, “Markets don’t move up in a straight line and setbacks are always likely, but those with patience and perseverance should see gains over the intermediate and long term.”


UBS Sees Big Market Swings And Only Slight Gains For Stocks in 2024


Economic Outlook 2024: UBS Sees Big Market Swings And Only Slight Gains For Stocks in 2024

UBS has released its 2024 market outlook, anticipating notable market fluctuations in the coming year. Contrary to the previously mentioned target, UBS strategists, led by Jonathan Golub, project the S&P 500 to reach 4,600 by year-end, a modest 5% increase from the recent close of 4,622.44.


Jonathan Golub advises investors to maintain a "bullishly positioned" stance as short-term growth is expected. However, he warns of potential economic downturns, advising a focus on labor market conditions, credit performance, and profit projections.


UBS anticipates a modest rise in S&P 500 earnings by just 1.8% in 2024, reflecting an economic slowdown and profit margin pressures from factors like rising wages and expenses.


Despite these challenges, Golub remains optimistic about specific sectors, recommending technology, health care, and communication services, while maintaining neutrality in financials and an underweight stance in energy, materials, and staples.


This cautious yet hopeful outlook aligns with the broader range of forecasts from other Wall Street firms, such as Goldman Sachs’ prediction of 4,700 and Bank of America’s more optimistic forecast of 5,000 for the S&P 500 in 2024.


Goldman Sachs Ups 2024 S&P 500 Target to 5,100 After Market Rally


Economic Outlook 2024: Goldman Sachs

Goldman Sachs has updated its 2024 stock market forecast ahead of the new year, with chief U.S. equity strategist David Kostin now predicting an 8% rise in the S&P 500 to 5,100. This adjustment is a response to falling yields and the Federal Reserve's shift towards a more lenient monetary policy. The S&P 500 has already experienced a significant rally, surging 5% in the past month to reach Kostin's original forecast of 4,700 for the new year, set in November.


Kostin's revision, detailed in a recent note, reflects expectations of falling inflation and the Fed's dovish turn, leading to a plunge in real yields. He notes, "Lifting our 12-month S&P 500 target to 5100 as inflation falls, the Fed turns dovish, and real yields plunge." This change in forecast comes amid a broader market rally since late October, influenced by economic data indicating a faster-than-expected slowdown in inflation. Last week, the Federal Reserve's forecast of three interest rate cuts next year fueled optimism, suggesting a relaxation of its stringent monetary stance.


The 10-year Treasury yield, a key factor for equity investors, has also decreased significantly, dropping from above 5% in October to 3.9%. Kostin's new year-end 2024 target implies a price-to-earnings ratio greater than 19x, up from the prior forecast of 18x, justifying higher valuations for equities due to lower rates.


Goldman Sachs also anticipates 5% earnings growth in 2024, surpassing the Wall Street consensus, with potential for even greater increases due to loosening financial conditions and stronger economic growth.


How To Play This To Your Advantage

Goldman Sachs has recommended that investors buy beaten-down cyclical stocks with weak balance sheets and small caps to capitalize on the market comeback. Additionally, Goldman suggests investing in stocks from its high Sharpe ratio basket to participate in the rally.


These stocks are selected for having the highest “prospective risk-adjusted returns” compared to their peers, meaning they offer higher returns with a ride just as smooth as their counterparts.


3 Key Stock Market Trends to Watch in 2024, According to Experts


A record-setting stock market, fueled by expectations of numerous interest rate cuts in 2024 and momentum around major stocks such as Nvidia (NVDA) and Apple (AAPL), has led some on Wall Street to express concerns about the sustainability of the rally.


"This is what it looks like when 65% of fund managers are behind their benchmark; we have this huge year-end push," Great Hill Capital chairman Thomas Hayes said on Yahoo Finance Live. "We have come a long way in a short period of time, and now the consensus is that we must correct in January and February.


I think a lot of people are positioning for a 5% or 10% correction — it wouldn't be surprising to see some consolidation in January and February." The short-term market outlook's concern seems well-founded for a few reasons. Firstly, history seems to side with those seeking a stock correction.


Cory Mitchell, an analyst from Trading.biz, states that over the last 20 years, the S&P 500 has only moved higher in January 50% of the time, which is the lowest of any month. Moreover, the average gain for the S&P 500 during the last two decades is a mere 0.1%.


Mitchell notes that this increase reflects a strong January 2023, where the S&P 500 advanced nearly 7%. Excluding this year, from 2003 to 2022, January averaged a return of -0.4% and only rallied 9 out of 20 years (45%).


Secondly, investors will have to grapple with early government-related risks. HSBC strategist Jose Rasco tells Yahoo Finance Live that two potential headwinds coming out of Washington at the start of the year include the beginning of the 2024 election process and another scramble to avert a government shutdown.


Beyond January, market experts shared with Yahoo Finance three key elements to watch in 2024, urging investors to remain vigilant and avoid complacency.


Wall Street's Top Forecaster for 2023 Reveals His Predictions for the Stock Market in 2024


Fundstrat's Tom Lee had the most accurate stock market forecast for 2023, distinguishing himself among many bearish predictions. A year ago, he projected the S&P 500 to end 2023 at 4,750. This forecast was particularly impressive given the prolonged bear market in 2022 and few signs of a strong recovery.


Lee's prediction was based on the resilience of the US economy despite rapid Federal Reserve rate hikes. He anticipated a 'soft landing' due to decreasing inflation and an end to rate hikes. The S&P 500 did indeed surge 25% in 2023, closely aligning with Lee's target of 4,785.


For 2024, Lee sets an optimistic target of 5,200 for the S&P 500, suggesting a potential increase of 9% from its current level.


The Key Drivers

The easing of financial conditions throughout 2024 is anticipated to be the primary driver of further stock market gains. The Federal Reserve has indicated that its next move on interest rates is more likely to be a cut than a hike, with the market currently expecting at least five cuts of 25 basis points each in the coming year.


A continued decline in interest rates from their recent high could result in lower mortgage rates, potentially revitalizing the housing market. Additionally, if inflation keeps decreasing, thereby enabling looser financial conditions, it could lead to an increase in consumers' real incomes, enhancing their purchasing power.


Corporate earnings, Stock Valuations, And Best Ideas


Tom Lee expects the S&P 500 to exhibit earnings-per-share growth of 11% in 2024, reaching $240, and an 8% growth to $260 in 2025, primarily driven by a cyclical recovery in profits. He notes, "Corporate capex fell past few years, but easing financial conditions mean capex recovers," adding that GDP growth in Europe and Asia should recover, boosting the global economy. Furthermore, a weaker US dollar and a rise in productivity are anticipated to uplift corporate profits in 2024.


Regarding stock valuations, Lee suggests that the price-to-earnings ratio will expand in 2024 towards 20x. He explains, "While many argue for valuation compression, since 1937, the higher price-to-earnings [ratio] realized when yields [are between] 3.5% to 5.5%. When between 4% to 5%, price-to-earnings is more than 18x 65% of the instances." His 2024 S&P 500 price target of 5,200 is based on applying a 20x earnings multiple to his 2025 guidance of $260 per share.


Lee's top recommendation for 2024 is small-cap stocks, which he believes could surge upwards of 50%, catching up to the broader market. He also favors stocks in the financials, industrials, and technology sectors.


Key Concerns for the Stock Market in 2024: Analyzing Potential Risks and Trends


In constructing a list of "what worries me," a good starting point is to take a stance opposite to the macroeconomic and earnings consensus. Currently, Wall Street anticipates numerous rate cuts in the next year, aligns with the "soft landing/no landing" view, and expects record earnings. However, there are concerns:


1. Fewer Rate Cuts Than Expected: Interest rates are dropping, usually leading to higher market multiples. Yet, this trend might not continue into 2024. Slower housing inflation, persistent economic growth, and wage inflation could make the Fed delay rate cuts, potentially unsettling the market.


2. Recession Risks: Despite economic indicators not supporting a notable slowdown, a recession perception persists. Any disappointments in inflation, wage growth, or job stats could fuel recession fears, impacting consumer spending.


3. Earnings/Revenue Disappointments: Analysts expect record earnings in 2024, but early reports show challenges like inflation pressure easing and lower volumes. This could lead to lowered forward estimates.


4. Technical Overbuying in S&P 500: Current indicators suggest the S&P 500 is overbought and expensive, making it a less attractive time for investments.


5. 2023 Sector Laggards: January might see buying in the most-beaten sectors of 2023, like energy, consumer staples, and utilities. However, these rallies could be limited due to factors like competition with Treasuries and supply-demand imbalances in oil.


Overall, while the S&P 500's significant growth in a year is positive, it's crucial to remain cautious and consider potential market shifts.


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