Americans faced many financial challenges this year, from persistent inflation to increasingly expensive debt. However, the stock market was one area of the economy that saw improvement.
After plunging more than 18% in 2022, the S&P 500 rallied over 24% in 2023. (Fun fact: Every time the S&P 500 has fallen more than 18% in a year, it has then posted at least two consecutive years of gains.)
Now the question is: Will this upward trajectory continue into 2024? And how can the average person get the most out of their investments next year? Here’s what experts say about what the stock market might do in 2024.
2024 stock market outlook
Overall, 2024 is expected to be a transition period for the stock market, with a somewhat bumpy ride early on. Next year, investors can expect declining inflation, reasonable economic growth, and potentially, interest rate cuts by the Federal Reserve, according to Niladri Mukherjee, Chief Investment Officer for TIAA Wealth Management. “In our view, equity volatility is likely to rise into the first half of the year, given the uncertainty of the disinflationary process and weakening consumer spending and labor market fundamentals,” he says.
In fact, the Fed’s monetary policy could be one of the biggest driving forces of market growth.
Mukherjee says that interest rates are likely to fall through the year as the Fed becomes less hawkish and inflation continues to decline alongside moderate economic growth. “However, rates should stay at higher levels relative to the pre-Covid era,” he says. Additionally, although cash yields are attractive for now, “the appeal of high-quality bonds will increase as the economy slows, and on better diversification attributes to risk assets,” he adds.
Anthony Denier, CEO of the trading platform Webull, says he believes the stock market will ultimately post a positive return in 2024 as investors anticipate interest rate cuts by the Fed. However, he adds, we probably won’t see as big of a rally as we did in 2023. “Typically, returns are muted in the last year of a president’s term,” he says.
Denier also anticipates greater depth and diversity in the S&P 500. “This year, just seven companies provided most of the returns for the S&P 500 and the NASDAQ,” he says. Known as the Magnificent Seven, these stocks—Alphabet (GOOG , GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA)—make up about 30% of the S&P 500. “I think we could see more movement in the remaining 493 companies next year,” Denier says. “I also think we could see midcaps outperform large cap stocks.”
Will there be a recession in 2024?
Following two years of blistering inflation and aggressive rate hikes by the Fed, the “R” word was high on investors' minds throughout 2023. Fortunately, a recession never materialized, and a so-called “soft landing” seemed more likely. But investors are worried that the U.S. economy could still dip into a recession in 2024.
The good news is many experts agree that’s not likely to happen.
For instance, J.P. Morgan strategists expect that while the U.S. economy is likely to slow, it will also likely avoid a recession. Specifically, while there could be a growth slowdown in the first half of 2024, they believe growth should resume in the second half of the year, and the probability of a deep recession is about 25%.
How should investors prepare for 2024?
Three important investing guidelines hold true no matter what experts are guessing the market will do.
Don’t try to time the market
Making predictions about the stock market can be fun, but there’s no way to know with certainty what will happen. That said, many people believe that the key to investment success is timing the markets: Getting out of stocks before a decline and getting back into stocks prior to a stock rally, according to Robert R. Johnson, a professor of finance at Creighton University’s Heider College of Business. “Nothing could be further from the truth,” he warns.
Even the pros fail at timing the market. One report from Dow Jones showed that over a 20-year period, fewer than 10% of actively managed U.S. stock funds were able to beat the index.
Instead, focus on building a diversified portfolio that withstands market ups and downs over time.
Recession-proof your finances
Although a recession is unlikely in 2024, it’s still a possibility. Recessions can be tough to predict and even the experts disagree on whether the U.S. will enter a recession in 2024. The best thing you can do is be proactive and recession-proof your money, just in case. That includes paying down expensive debt, building up your emergency savings, and cutting back on unnecessary spending.
Stay the course
Stock market fluctuations can be scary, especially when your portfolio value drops significantly in a matter of days. However, it’s important to remember that stock market volatility happens, and a well-crafted investment strategy will allow you to ride out the downturns and take advantage of upswings. Pulling your money out of the market when stocks are down will only hurt you in the long run.
“In this environment, investors should remain fully diversified across multiple asset classes and regions, and in line with one’s financial goals and risk tolerance,” Mukherjee said.
If you aren’t sure how to build a portfolio that fits your investment goals, it can help to consult with a financial planner. Or if you’re looking for a more cost-effective option, consider a robo-advisor.
