According to a Reuters poll released on Tuesday, strategists predict that the S&P 500 will only see a modest 3% increase by the end of next year, with concerns over a potential U.S. economic slowdown or recession being the biggest risks for the market in 2024. The median forecast of 33 strategists polled by Reuters indicates that the benchmark index will reach 4,700 by the end of next year, which is 3.4% higher than its closing level on Monday.
Out of the 13 strategists who were asked if U.S. stocks will reach a record high in the next six months, 9 of them responded positively, with most of them expecting it to happen in early 2024.
In recent weeks, Wall Street stocks have experienced a strong rally, driven by the belief that the Federal Reserve will no longer raise interest rates and may even consider cutting them next year. Last week, investors were pleased with the benign October inflation data, which showed a decrease in gasoline prices. So far, the S&P 500 has gained approximately 18% in 2023.
However, concerns persist that the economy could potentially enter a recession or at least experience a slowdown in the coming year. Paul Christopher, the head of global investment strategy at Wells Fargo Investment Institute, believes that the economy will continue to weaken throughout 2024 and that there is a point where the consumer will break. Nevertheless, Wells Fargo Investment Institute predicts that the U.S. economy could quickly transition into recovery mode in the second half of the year, and they expect the S&P 500 to end next year between 4,600 and 4,800.
Markets are currently anticipating a deceleration in inflation and are pricing in a greater than 50% chance of a rate cut by at least 25 basis points by May, according to CME’s FedWatch Tool. However, Goldman Sachs’ economic team believes that the Fed will hold off on cutting rates until the fourth quarter of next year, as stronger-than-expected economic growth may help prevent a recession.
Aside from economic concerns, strategists also highlight geopolitical problems as a risk to the market in 2024. Many investors are closely monitoring the conflict between Israel and Hamas militants in Gaza.
Despite these risks, 10 out of 13 strategists predict that U.S. corporate earnings will grow in the next six months. The overall estimated earnings growth for the S&P 500 in 2023 is 2.3%, following a weak first half of the year. Analysts expect earnings to rise by 11.2% in 2024 compared to the previous year.
However, valuations have increased alongside recent market gains. The S&P 500 index’s forward 12-month price-to-earnings ratio now stands at 19.1, up from 17 at the end of 2022 and its long-term average of about 16.
For some strategists, technology remains a favored sector heading into 2024. It has been the best-performing sector of the S&P 500 this year, with a 52% increase so far. Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York, believes that the technology revolution will continue.
Based on the poll, the Dow Jones industrial average is expected to reach 38,000 by the end of next year, representing an 8% increase from Monday’s close. So far in 2023, the Dow has gained 6%.
(Reporting by Caroline Valetkevitch; additional reporting by Chuck Mikolajczak, Sinead Carew, and Stephen Culp in New York; Additional polling by Pranoy Krishna, Rahul Trivedi, and Sarupya Ganguly in Bengaluru, Editing by Alexandra Hudson)