What's in the stock market forecast for 2024? (2024)

The stock market climbed the wall of worry to post impressive gains in 2023. After the big run, stock market forecasts for 2024 hinge on one key question: Will the Federal Reserve engineer a soft landing for the US economy? And on a related question: Can stocks increase their profits?

Industry insights, we countdown to2024with new investment themes and strategies.Blackrock VS'Jay Jacobs discusses the role that big tech with artificial intelligence will play in the markets. We also highlight how potential rate cuts will impact investors." data-nosnippet="true" jw-video-key="vUZ3ScDt" vid-authors="MEREDITH HEYMAN" vid-cat="Industry Insights" vid-date="22 -12-2023" vid-date-tmsp="1703245977" vid-dom-id="8849680-660b05f02a6ac" vid-id="8849680" vid-image="https://www.investors.com/wp -content /uploads/2023/12/vUZ3ScDt-640x360.jpg" vid-name="From artificial intelligence to interest rate cuts, here's how investors can make big profits in 2024" vid-repeat="1" vid-top="false " vid-url="https://content.jwplatform.com/manifests/vUZ3ScDt.m3u8" vid-width="50">X

Wall Street is especially confident that the Fed will achieve its goal of a soft landing for the US economy. This means there will be slower economic growth, but not a recession, leading to interest rate cuts in 2024.

In that environment, most analysts are predicting improved corporate earnings growth for S&P 500 companies. As for how stocks will fare in the coming election year, 2024 forecasts for the S&P 500 vary widely, but the consensus appears to be within the range of 8 %-9%, slightly below the index's historical average of around 10%. Among other trends, it is widely seen that artificial intelligence will remain an important investment theme in 2024.

The stock market is entering the new year with the wind of a fantastic 2023 at its back. The year ended with the Nasdaq composite posting its fifth-best annual performance. The recovery was especially welcome after the index fell 33.1% in 2022. Taking into account the 43.6% explosion in 2020, the Nasdaq is now on track to have two of the six best years in history in the current decade.

S&P 500-steg 24,2% in 2023.

That is more than double the historical average annual return. It also recovered nicely from a 19.4% loss in 2022.

Stock market gains accelerated in November and December, as the Nasdaq and S&P 500 rose 16.8% and 16.2%, respectively. November marked the best monthly gains for both indexes since July 2022. At the end of December, the two indexes and the Dow Jones Industrial Average were at or near record highs. But the first week of January was a different story, as the Nasdaq and S&P 500 posted extended losses.

2023 Scholarship Development

For 2023, the Nasdaq composite rose 43.4% and the Dow Jones rose 13.7%.

But the year's gains were concentrated in a handful of major stocks, such asAppel(AAPL),Microsoft(MSFT),Nvidia(NVDA) InTesla(TSLA). Outside the so-calledBeautiful seven shares, stock market performance itself was calmer.

The Invesco S&P 500 Equal Weighted ETF (RSP) rose about 12% on December 27. The Direxion Nasdaq 100 Equal Weighted ETF (QQQE) rose 32.3%. By comparison, the market-cap-weighted Nasdaq 100 rose nearly 54%.

The IBD 50 index slightly underperformed the S&P 500, gaining 20.8% for the year.

Limited participation through most of the stock market in 2023 created a difficult environment in which accurate stock selection became an essential skill.

However, in the last two months of 2023, the stock market saw breadth improve as major indexes rose.

On the Nasdaq and NYSE, the 10-day moving average of new highs began to surpass new lows beginning in mid-to-late November. And since November, inventories in volume have exceeded inventories that have fallen in volume. This is a significant shift as volume declines have prevailed since at least September.

One reason the stock market has recovered since November is that buyers began spreading their wealth across a larger pool of stocks. Since the Oct. 27 low, the Invesco S&P 500 Equal Weight is up more than 18%, surpassing the S&P 500's 15.9% gain in the final session of 2023. First Trust Nasdaq 100 Equal Weight (QQEW) is up 18.7%, matching the market-cap-weighted Nasdaq 100's rise over the same period.

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Historical precedent gives Bulls hope

Historical precedent gives market bulls hope for 2024 stock market forecast.

Since the S&P's inception in 1957, the index has averaged an average return of 9% per year, following annual gains of more than 20%, according to Dow Jones Market Data. The next best year was 1997, when the S&P rose 31%. The worst year was 2022, with a decline of 19.4%.

Nicolas Colas, co-founder of DataTrek Research, says the S&P 500 is down a statistically unusual amount in 2022.

Despite big gains, 2023 was essentially normal in terms of historical total returns – within a margin of one standard deviation.

Starting with unusual bear market losses in 2022, the third year of such reverse combinations is typically bullish.

"Since 1928, the third year of such a series has had an 80% win rate. The only exception was at the start of World War II," Colas said in a Dec. 13 note. “Barring a major exogenous shock, history suggests that 2024 will be another good year for US majors.”

Stock Market Prediction 2024: AI Stocks

While it's impossible to make a stock market prediction with certainty, some of the key themes of 2023 will carry over into the new year and impact stock performance.

Fluctuating government interest rates, economic performance, the rise of generative artificial intelligence and the so-called Magnificent Seven stocks will continue to play a major role in 2024. The November elections add a new layer to the prospects.

The excitement about generative artificial intelligence in 2023 saw heavy investments from technology companies in semiconductors, computer hardware and software.

Generative artificial intelligence can create content – ​​including written articles, images, videos and music – from simple descriptive sentences. Artificial intelligence systems analyze and process enormous amounts of data to create new work. Generative AI can also write computer programming code.

There was no bigger AI stock than Nvidia in 2023. And investment firm Evercore ISI called Nvidia "arguably the most important stock in the world right now" in November. For 2023,Nvidia stockexperienced an increase of 238%.

Demand for graphics processors and data center hardware for artificial intelligence applications has driven massive revenue and profit growth for Nvidia this year.

On November 21, Nvidia crushed Wall Street targets for its fiscal third quarter thanks to massive growth in sales of AI processors for data centers. The Santa Clara, California-based company's profits rose 593% year over year, while revenue rose 206% to $18.12 billion.

“We believe a theme in 2024 will be less about AI 'creators' and more about AI 'adopters' – across the spectrum of industries and sectors – as companies increasingly focus their capital expenditures on productivity-enhancing investments,” Liz Ann Sonders, manager . investment strategist and Kevin Gordon, senior investment strategist, wrote in Charles Schwab's 2024 outlook.

KeyAI-actorsincludes the Magnificent Seven, along withC3.ai(AI) InPalantir Technologies(PLTR).

Stock market forecast 2024 and the beautiful seven

OfBeautiful seven—Amazon.com(AMZN),Alphabet(GOOGL), appel,Meta-platform(META), Microsoft, Nvidia and Tesla were responsible for the majority of the stock market performance in 2023.

The time has come from December 15thThe Magnificent Seven had contributedmore than two-thirds of the S&P 500's return this year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.

Magnificent Seven's shares represent approximately 30% ofMarket capitalization of the S&P 500This is evident from Goldman Sachs Global Investment Research. The combined weight of these companies is greater than any combined weight of the seven largest companies in S&P history.

Great seven stock 2023 earnings

Source: IBD data as of December 29, 2023

Even with the breadth of the market, the Magnificent Seven should have a lot of market attention and performance.

For now, most of the seven are in good shape; however, cracks are starting to appear. Apple is below the 50-day limit, while Microsoft and Nvidia remain within their buying range as of January 4. Alphabet and Amazon are below their recent buy points, while Tesla is approaching a new buy point. The meta expands from their breakout.

Stay informed about the direction of the stock market

The stock market experienced three major upward trends in 2023. Investors who stayed informed about these phases – and IBD's market assessment on the Investors.com website and the IBD Weekly newspaper – avoided the write-downs.

On January 6, 2023, the Nasdaq rose 2.6%,leads to a follow-up dayand a new uptrend in the stock market according to IBDsThe big picture. In the following weeks, the Nasdaq rose as much as 16% to a high of 12,269.56.

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After a decline of 10% to the low point in mid-March, the major stock indices are indexingorganized another trend-changing follow-up29 March. At its July 19 high, the Nasdaq rose steadily by as much as 21% to 14,446.55.

On November 1, the Nasdaq initiated the last uptrend of 2023another follow-up day. At the time, the Federal Reserve kept the Fed funds rate unchanged and Fed Chairman Jerome Powell indicated the central bank felt its rate hikes were cooling prices and growth. In short, Powell & Co. less hawkish.

Prior to that follow-through, the Nasdaq had fallen about 13% from the July 13 high to the October 26 low of 12,543.86. This decline was directly due to the increase in ten-year US Treasury yields from below 4% to 5%.

Stock market forecast 2024: soft landing for the American economy

Most of Wall Street agrees that the stock market's 2024 outlook largely depends on whether the Federal Reserve can engineer a soft landing. While there is no official definition of a soft landing, Wall Street is assessing whether the Federal Reserve can keep interest rates just high enough to slow the economy and reduce inflation without triggering a recession. A recession would be a hard landing.

Many measures slow down the economy in a controlled manner. The tightening of credit standards combined with lower consumer spending and inflation is expected to slow the US economy. The severity of this weakness will likely determine stock market forecasts for 2024.

“The labor market has undeniably cooled after being red hot in recent years,” said Bill Adams, chief economist at Comerica Bank, in a research note.

“US economic growth in the fourth quarter of 2023 is likely to be significantly slower than the breezy 5.2% annualized gain in the third quarter, but a slowdown is unlikely. Many of the fourth-quarter downside risks that economists were concerned about a few weeks ago – war in the Middle East, government shutdown, the UAW strike – appear likely to be only modest and short-lived headwinds exert on growth.”

OfNovember US Job Reportshowed that hiring has fallen but not stabilized as employers added 199,000 payroll jobs, including a big boost from the end of the auto strikes. The unemployment rate surprisingly fell from 3.9% to 3.7%, but annual wage growth fell just below 4%.

While few Wall Street analysts see the US economy shrinking, varying US GDP forecasts exist for 2024.

On December 11, S&P Global Market Intelligence raised its 2024 forecast for US real GDP growth from 1.4% to 1.5%, whileCongressional Budget Officealso expects economic growth in the US of 1.5 percent. Meanwhile, the FactSet consensus estimate for 2024 is for growth of 1.2%.

Furthermore, Darrell Cronk, president of the Wells Fargo Investment Institute, and his strategists believe the U.S. economy will slow to an annual growth rate of 0.7% in 2024, down from the 2.2% forecast for 2023.

Fed Rate Cuts and 2024 Stock Market Predictions

“Don't fight the Fed” is a common mantra in the investment world. This will also be the case in 2024.

At its December meeting, the Fed did not say it was done raising rates, and policymakers initiated rate cuts totaling 75 basis points by 2024.

The new set of quarterly forecasts show that Fed committee members expect to cut their policy rate to 4.6% by the end of 2024, down from the current range of 5.25% to 5.5%. That's down from September projections, which showed the federal funds rate would end next year at 5.1%.

“Inflation continues to fall. The labor market continues to rebalance. So far so good,” Powell said in comments after the policy announcement.

From December 28CME FedWatchshowed a 14.5% probability of a quarter-point rate cut at the January 31 meeting, with an 81% probability in March. Fed funds futures are pricing in a significant number of Fed rate cuts in 2024, ultimately lowering the target rate to 4% to 4.25%.

Wells Fargo's Cronk isn't as forgiving. He and his team see a tremendous amount of uncertainty for many reasons, including the strength of the U.S. economy and persistently high inflation.

On December 12the consumer price indexshowed that core prices rose slightly in November compared to hot services prices, although cheaper gas contributed to a decline in the overall CPI figure.

Although inflation will continue to decline in 2024, prices for consumers will remain high. To keep inflation from spiraling out of control, the Fed appears reluctant to cut rates too early. But as Powell noted, monetary policy mustTake into account the risk of tightening too long.

Stock market forecast 2024: the presidential elections

Much is at stake in the November elections, from control of the White House and Congress to legislatures, governors and other centers of power.

Still, it's a plus for the stock market forecast for 2024. Stocks tend to rise in election years. Since 1952, the S&P 500 has never seen a decline during a presidential election year, Comerica Chief Investment Officer John Lynch noted. The only years of decline were 1960, 2000 and 2008, years when both parties offered new presidential candidates.

“It is also interesting to observe the performance of the stock market as we anticipate the outcome of the elections. The S&P 500 tends to perform better in presidential elections, when the incumbent party wins,” he added. “It stands to reason that if the economy and markets are doing well, voter sentiment will likely be behind the incumbent president.”

According to the Stock Trader's Almanac, the stock market has a long history of outperformance during presidential election years and even in the years leading up to elections.

'It is no mere coincidence that the last two years (pre-election and election years) of the 48 presidential terms since 1833 produced a combined net market gain of 772%, surpassing the 336.5% gain in the first two years of that dwarfs deadlines. Almanac editor Jeffrey Hirsch writes. Wars, recessions and bear markets usually occur in the first two years of the term. Booms and bull markets are more common in the second half of the term.

2024 Large hoods, Small hood Aktier

Meanwhile, State Street Global Advisors' Michael Arone and Matt Bartolini recommend in their 2024 ETF Market Outlook that investors focus on "high-quality companies with strong pricing power, stable earnings and healthy balance sheets." These types of companies are more resilient to margin pressure and higher financing costs in higher interest rate environments.

To pursue quality growth, Arone and Bartolini recommend the SPDR MSCI USA StrategicFactors ETF (TO ASK) and the SPDR NYSE Technology ETF (XNTK), among other things.

Wells Fargo's Cronk agrees, saying investors should overweight large caps because small and mid-cap stocks will struggle during economic downturns. Later in 2024, Cronk says investors should turn to riskier asset classes as the US economy should start to recover from weakness in the first half of the year.

But Ronald Temple, market strategist at Lazard Asset Management, and Francis Gannon, co-chief investment officer at Royce Investment Partners, also see potential for U.S. small-cap stocks.

The large number of unprofitable small-cap companies likely means smaller companies are struggling with rising borrowing costs, which should ease as the Fed moves to cut rates, Temple said in a report. But investors should continue to favor higher quality companies among the small caps.

Gannon said in a research note: “Small-cap stocks are poised for a recovery after a challenging few years, both on an absolute and relative basis, versus large-caps. And while we don't engage in economic forecasting, we think many small caps have already priced in a recession or economic slowdown. It is certain that many companies have been preparing for these possibilities for some time.”

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Regional banking crisis of 2023

While immediate concerns have subsided, that will be the case in 2023regional banking crisissent shockwaves through the financial sector as rapidly rising interest rates led to large unrealized losses for some banks.

The banking crisis began in early March with the rapid collapse of Silvergate Capital. Plans were announced to phase out operationsvoluntarily liquidate Silvergate Bank on March 8.

Two days later, on March 10, Silicon Valley Bank became the first FDIC-insured financial institution to file for bankruptcy in 2023. Santa Clara, California-based Silicon Valley Bank has been the lender of choice for many tech startups. So on May 1, regulators seized and immediately sold First Republic BankJPMorgan Chase(JPM).

While the emergency is over, regional banksKeyCorp(KEY),Civic economics(CFG) InTruist(TFC)reported big declines in profitsfor the third quarter, indicating a potential long-term overhang.

Rising costs for banks to obtain and hold deposits are weighing on bank profits, along with losses related to the value of bonds banks bought when interest rates were low.

Looking ahead to 2024, ratings agency Fitch said U.S. regional banks will face continued challenges in 2024. “Regional banks that lack scale will be disproportionately pressured to reduce cost bases and optimize credit mix.”Fitch said in mid-November.

Fitch added that this would "reduce their valuation pressure and leave larger players relatively well positioned to continue gaining market share."

SPDR S&P Regional Bank ETF (LITTLE CUPBOARD) rose as much as 57% to a high in December, compared to a low in October, indicating that investors are less concerned about the health of the sector. But much of that strength comes from falling interest rates. Diminishing, less reverse returns arebullish for regional banks, which rely on a traditional strategy of borrowing at a higher interest rate than they borrow.

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Stock market forecast 2024: price targets on Wall Street

According to John Butters, senior earnings analyst at FactSet, 2023 saw weak earnings growth for the S&P 500, with annual earnings per share expected to grow less than 1% and revenue to rise 2.3%.

On a quarterly basis, the S&P 500 reported earnings declines of -1.7% and -4.1% for the first and second quarters of 2023. However, the index posted earnings growth of 4.9% in the third quarter and is expected to post earnings growth of 2% report. 4% for the fourth quarter, according to FactSet estimates.

Growth is expected to improve in 2024. Analysts expect earnings growth of 11.5% year-on-year, Butters says.

But not all of Wall Street is convinced of this.

“Looking ahead, we expect the economic slowdown to weigh on equity markets, prompting a potential pivot to investments that we believe are most likely to benefit from a subsequent recovery,” Cronk said.

His target for the S&P 500 by the end of 2024 ranges from 4,600 to 4,800. With the S&P 500 ending 2023 around the 4,700 level, there isn't much upside potential left for the stock. However, other investment firms are more optimistic.

Among notable Wall Street companies, Yardeni Research has the most bullish price target with an expected upside of more than 14%. On the other hand, JPMorgan expects the S&P 500 to fall about 11% in 2024. The consensus price target appears to be the 5,100 level, which would mean modest gains for shares next year.

S&P 500 forecast for 2024

Bron:Market overview;The 2024 S&P 500 performance uses the December 15, 2023 closing price.

Make sure you follow Scott Lehtonen on X, formerly known as Twitter, at@IBD_SLehtonenfor more information about growth stocks and the Dow Jones Industrial Average.

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