Defying naysayers and “recession pundits,” the U.S. stock market delivered strong double-digit returns last year, with at least two indices - the Dow Jones Industrial Average ($DOWI) and Nasdaq-100 Index ($IUXX) - rising to record highs, with the Nasdaq-100 jumping over 53% to wrap one of its best years ever.
As investors now turn their eyes on 2024, here are the stock market predictions from leading analysts, as well as the key risks to watch out for.
Most Analysts Got Their Forecasts Wrong in 2023
Let’s begin with a pinch of salt here, as most analysts got their forecasts wrong last year. The consensus view at the beginning of 2023 seemed to be that the U.S. economy was headed for a recession after the Fed’s aggressive rate hikes in 2022.
As it turned out, the Fed continued to hike interest rates in 2023, all the way to 5.25%-5.50% - the highest level since 2001. However, even as recession calls grew stronger around March amid the regional bank crisis, the U.S. economy surprised both the bulls and the bears with its resilience.
Markets rewarded bulls after the 2022 meltdown and U.S. stocks roared back in the first half of 2023, thanks to the stellar rise in tech names like Meta Platforms (META) and Nvidia (NVDA). Stocks did fall from their 2023 peaks, and the S&P 500 Index ($SPX) briefly entered into correction territory in October – only to rise to new 2023 highs in December on the back of the “Santa Claus” rally.
Stock Market Predictions 2024
Brokerages like Goldman Sachs have lifted their 2024 predictions for U.S. stocks. but the median target for the S&P 500 is only 5,068 according to FactSet. This implies annual gains of just over 6% - which, for context, is below the 10% that the S&P 500 has averaged over the long term.
Goldman Sachs, Deutsche Bank, Citigroup, and Bank of America are in the bullish camp that expects the S&P 500 to be at 5,000 or higher by the end of 2024. JPMorgan Chase, meanwhile, is heading up the bearish camp with its year-end S&P 500 target of 4,200 - the lowest among major brokerages. Morgan Stanley - whose chief investment officer, Mike Wilson, correctly predicted the 2022 market crash before getting it wrong last year - expects the S&P 500 to be at 4,500 by the end of 2024.
What Risks Should Investors Watch for in 2024?
The consensus view currently seems to be that the U.S. economy will dodge a recession, and is instead headed for a “soft landing.” Also, markets are pricing in rate cuts later this year in hopes that inflation will continue to taper down, as it has done since peaking at 9.1% in June 2022.
I believe investors should watch out for the following risk factors in 2024:
- Inflation shock amid an unexpected rise in oil prices: The steep fall in global oil and gas prices helped tame inflation. Also, as consumers had to shell out less at the gas station, they were able to spend on other goods, which helped prevent the feared slowdown in consumer spending. Notably, oil prices weakened in 2023 despite the ongoing Russia-Ukraine war as well as the hostilities between Israel and Hamas. That said, any unexpected rise in oil prices remains a major risk for stocks in 2024, and could spoil the expected rate cuts and soft landing.
- Stretched valuations: U.S. stock market valuations are looking a bit stretched, especially after December’s Santa Claus rally. The current valuations don’t leave much scope for a multiple expansion, and given the nearly fully-priced markets, stocks could react sharply to any negative shock. I believe stretched valuations are the biggest risk for investors in 2024.
- Recession fears: While most brokerages have lowered the odds of a recession in 2024, it remains a potent risk. Though rising sales through buy-now-pay-later mode are positive for names like Affirm (AFRM), it also goes to show the stress among the average consumer, as many are opting to pay in installments even for grocery purchases.
Also, history is not on the side of investors in 2024, as the returns in an election year are usually lower as compared to historical averages. That said, I believe there is still a chance of markets delivering double-digit returns in 2024, if the economy heads for a soft landing and the Fed embarks on its rate cuts.
On the date of publication, Mohit Oberoi had a position in: AFRM , META , NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
