Stock Market Forecast For 2024

The S&P 500 had an impressive performance in 2023, generating a total return of 26.29%, rebounding strongly from an 18.11% setback in 2022. As we enter 2024, there is optimism among investors that the same macroeconomic factors that drove the stock market's rally in 2023 will continue to propel the S&P 500 to new all-time highs.

Despite lingering concerns about inflation, interest rates, high levels of debt, and political challenges in Washington, D.C., investors are hopeful that the Federal Reserve will successfully engineer a soft landing for the U.S. economy, potentially leading to interest rate cuts.

The combination of falling interest rates and positive earnings growth could provide strong support for stocks. However, some analysts have raised concerns about the high valuations in the technology sector, and the upcoming 2024 U.S. presidential election may introduce additional volatility into the market.

2024 Stock Market Predictions

As the S&P 500 wrapped up 2023 with momentum, it embarked on a nine-week winning streak, positioning itself close to its first new all-time high since December 2021. Historical data suggests that the average S&P 500 bull market, spanning from 1921 through 2023, has generated returns of approximately 157% and lasted more than four years. This historical pattern implies that the current stock market rally may have room to continue.

One standout theme during this bull market has been the significant role played by artificial intelligence (AI) technology. AI tech stocks, including AI chipmaker Nvidia, were among the top performers in 2023. James Demmert, Chief Investment Officer at Main Street Research, suggests that this AI-driven bull market might be in its early stages, driven by AI's productivity growth and tailwinds.

The Federal Reserve made substantial progress in curbing inflation in 2023. While the personal consumption expenditures price index remained at 2.6% year-over-year in November, core PCE inflation, excluding food and energy prices, was at 3.2%. The Fed's long-term target for core PCE inflation is 2%, indicating that there's still work to be done.

Fed Projections

In December, the Federal Open Market Committee (FOMC) released its long-term economic projections for 2024, forecasting core PCE inflation of 2.4% and GDP growth of 1.4%. FOMC members anticipated three interest rate cuts by the end of 2024.

Investors and analysts generally view rate cuts as favorable for stock prices, as long as they don't coincide with an economic recession. The bond market is currently pricing in a 70% chance of the Fed issuing its first interest rate cut by March, with an 80% chance of at least five rate cuts from current levels by the end of 2024.

Despite improved optimism about the economy, there's still a risk that Fed policy tightening could push the economy into a recession in 2024. According to the New York Fed's recession probability model, there is a 62.9% chance of a U.S. recession within the next 12 months.

Market Sectors To Watch In 2024

Analysts project robust earnings growth of 11.5% and revenue growth of 5.5% for S&P 500 companies in 2024. Notably, all eleven market sectors are expected to experience positive earnings and revenue growth in 2024.

The healthcare sector is anticipated to lead with a market-leading 17.8% earnings growth, while the information technology sector is set to lead in terms of revenue growth at 9.3%. On the other end of the spectrum, the energy sector is projected to have the lowest earnings growth of 2.9% and revenue growth of 1.9% in 2024.

Within the technology sector, investors are closely monitoring the "Magnificent Seven" mega-cap stocks that dominated the S&P 500's performance in 2023: Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Microsoft (MSFT), Meta Platforms (META), Tesla (TSLA), and Nvidia (NVDA). These stocks led the charge, prompting questions

about their valuations.

Nigel Green, founder and CEO of deVere Group, acknowledges concerns about valuations but expects these stocks to continue performing well in 2024. He highlights their market positions, commitment to innovation, resilience during economic downturns, and alignment with global megatrends as factors supporting their sustained success.

How Stocks Perform in Election Years

Historically, stock market returns during U.S. election years have been relatively lackluster. Since 1952, the S&P 500 has averaged a 7% gain during presidential election years, which is below its typical average annual total return of around 10%. However, during presidential re-election years when an incumbent president is on the ballot, the S&P 500 has averaged a more robust gain of 12.2%.

Since 1973, the financial services and energy sectors have been the top-performing S&P 500 sectors during presidential election years, while the information technology and materials sectors have been the weakest performers.

How To Invest in 2024

Investors looking ahead to 2024 should consider the following strategies based on their outlook:

• Growth Stocks and Technology: Growth stocks and technology sector stocks performed exceptionally well in 2023. Investors anticipating a soft landing for the economy and aggressive rate cuts in 2024 may consider leaning into these themes.
• Defensive Sectors: Concerns about persistent inflation and a potential recession in 2024 could lead investors to increase exposure to defensive market sectors with relatively stable earnings. These include the healthcare, utilities, and consumer staples sectors.
• Valuation Awareness: The S&P 500's forward price-to-earnings ratio is currently above its 10-year average, implying that companies will need to deliver strong earnings growth for the market to reach new all-time highs. Be aware of valuations, especially within the technology sector.
• Market Volatility: Expect volatility in the stock market leading up to the November election. Consider a neutral tactical allocation to equities with a modest overweight to fixed income funded from cash to manage risk.
• Large-Cap Growth Stocks: Analysts recommend large-cap growth stocks over value stocks in 2024, particularly in a slowing economy. These stocks may benefit from lower inflation and stabilized interest rates in the short to medium term.

Analysts overall hold an optimistic view of stock prices in 2024, with a consensus analyst price target for the S&P 500 at 5,090, suggesting approximately 8.5% upside from current levels.