The stock market is expected to continue its rally in 2024 and potentially reach new highs, according to several major Wall Street analysts and investment banks. However, risks such as higher interest rates, recession fears, geopolitics, and high inflation could derail the optimism.
Earnings Growth and Fed Policy Support Stocks
Many strategists predict strong earnings growth will lift stocks higher next year.
Fundstrat’s Tom Lee revealed the highest S&P 500 forecast for 2024, predicting the index could surge to 6,000 by year-end, representing over 15% upside from current levels. Lee believes earnings will expand significantly as inflation pressures fade. [1]
Bank of America also sees potential for stocks to scale fresh peaks, forecasting the S&P 500 at 5,100 by late 2024 as profits grow. The bank expects the Fed to cut rates in 2024, relieving pressure. [2]
Citi echoed bullish sentiment, raising its 2024 target to 5,200. Strategists cited “supportive Fed policy, peaking inflation and terminal rates below historical norms” as positives. An expected earnings reacceleration underpins the upbeat outlook. [3]
JPMorgan analysts contend current valuations already “price in perfection” for 2024. Thus stocks are vulnerable to disappointment if the favorable backdrop shifts. [4]
Table 1: Major 2024 Stock Market Forecasts
| Bank | S&P 500 Target | Implied Upside |
|---|---|---|
| Fundstrat | 6,000 | >15% |
| Bank of America | 5,100 | 12% |
| Citi | 5,200 | 13% |
Recession Fears Linger Despite Hopes of Soft Landing
Strategists predominately expect inflation to moderate and the economy to skirt recession in 2024 after weathering mild downturns in 2023.
Morgan Stanley described current valuations as “pricing in perfection” regarding the economic outlook. Meanwhile, Deutsche Bank warned the “race against time is on” to achieve a soft landing as policy lags may trigger recession. [5]
Wells Fargo contends “ingredients are in place” for a soft landing but warns investors not to underestimate recession risks. The bank recommended tilting portfolios defensively in case of downturn. [6]
Without a profits collapse, Wells Fargo’s Chris Haverland believes stocks can grind higher in 2024 even if GDP shrinks mildly. The firm sees upside for equities but advised playing defense until risks clarify. [7]
Geopolitics, Inflation Represent Wildcards
Russia’s ongoing war in Ukraine and faltering Chinese growth shape an uncertain geopolitical landscape carrying implications for markets in 2024.
Meanwhile, inflation remains sticky despite showing signs of cooling. Any reacceleration in prices could force further Fed tightening and raise concerns over peak policy rates.
BNP Paribas strategists contend 2024 hinges on the resilience of corporate earnings to withstand geopolitical turmoil and inflation persisting above targets. Sustained pressure on margins may prompt downward revisions. [8]
Key wildcards aside, Deutsche Bank strategist Scott Wren summarized the generally constructive view: “We believe there is a path over the next 12-18 months for stocks to grind higher.”
Stocks Seen Returning 15-20% in Base Case
Most analysts forecast double-digit upside for stocks in their base case scenario for 2024. But gains rely on realized earnings aligning with estimates near $240 per share.
Tom Lee argued stocks are “significantly under-owned” relative to history. Thus any positive catalyst could spur outsized upside as investors pile back into equities. [9]
Meanwhile, Jeremy Siegel, professor at Wharton Business School, expects the S&P 500 will reach new heights above 4,100 over the next year or two based on historical market cycles. Like Lee, Siegel cited indicators of weak investor sentiment supporting gains. [10]
Analysts at Lombard Odier contend valuations already bake in recession but leave room for 15-20% equity returns should profits hold up. Strategists described stocks as the “only asset class that still offers value.” [11]
Overall, most experts remain constructive on stock market returns in the 10-15% range for 2024 so long as profits track near estimates and withstand external risks. But disappointment on either front may lead to downside.
This outlook suggests navigating 2024 will require vigilance of indicators tied to corporate earnings, Fed policy, inflation trends, and geopolitical issues in order to gauge mounting risks. Positioning defensively in areas like healthcare and staples provides insurance if conditions deteriorate.
Individual Stocks Offer Compelling Opportunities
Several high quality stocks appear primed to outperform in 2024 even if broader indices struggle.
Bank of America highlighted Eastman Chemical (EMN) and Deutsche Bank named Norfolk Southern (NSC) as top picks. Meanwhile, JPMorgan recently upgraded stocks like Meta Platforms (META), Netflix (NFLX) and Pinterest (PINS) to overweight. [12]
Specifically, strategists see Eastman Chemical benefiting from secular growth drivers in health and wellness while also possessing pricing power. And Norfolk Southern’s cost cuts position the firm favorably as rail volumes recover.
Meta Platforms stands out for its untapped revenue potential in areas like Reels and ecommerce. And the stock trades at appealing valuations after its deep sell-off.
Conclusion: Moderate Returns but Risks Abound
The 2024 stock market outlook leans positive overall but relies on earnings stability amidst threats from hawkish Fed policy, inflation, and other macro headwinds. Stocks appear primed for moderate gains though below historical averages.
Successful navigation requires tracking critical signposts tied to profits, economic trends and geopolitics. Maintaining balanced positioning between defensive and cyclical exposures can help mitigate risks.
And compelling opportunities exist on a stock-specific basis thanks to temporary dislocations or durable competitive strengths. Discerning these winners can help buffer portfolios against potential index declines.
With sentiment still depressed compared to past cycles, a positive surprise on growth or inflation could spur outsized upside. But substantial risks remain so exhibiting prudent skepticism still warrants merit heading into 2024.
[1] https://www.marketwatch.com/story/fundstrats-lee-reveals-highest-s-p-500-forecast-on-wall-street-what-the-stock-markets-biggest-bull-expects-in-2024-3cba04ec
[2] https://finance.yahoo.com/news/bank-america-says-p-500-211200353.html
[3] https://www.investing.com/news/stock-market-news/citi-predicts-sp-500-to-reach-5200-by-late-2024-93CH-3253079
[4] https://www.morganstanley.com/ideas/stock-market-2024-priced-for-perfection
[5] https://flow.db.com/more/macro-and-markets/outlook-for-2024-the-race-against-time
[6] https://www.cnbc.com/2023/12/06/stock-market-outlook-wells-fargo-defensive-sector-recession-inflation-risk.html
[7] https://newsroom.wf.com/English/news-releases/news-release-details/2023/Wells-Fargo-Investment-Institute-Believes-2024-is-a-Pivotal-Year-for-the-Economy-and-Markets/default.aspx
[8] https://viewpoint.bnpparibas-am.com/talking-heads-new-realities-for-investors-in-2024/
[9] https://realmoney.thestreet.com/markets/tom-lee-stocks-to-surprise-to-the-upside-in-2024-delivering-12-15-returns-16139661
[10] https://fortune.com/2023/12/05/jeremy-siegel-federal-reserve-jerome-powell-rates-calls-dow-all-time-high/amp/
[11] https://www.lombardodier.com/contents/corporate-news/investment-insights/2023/december/ten-investment-convictions-for-2.html
[12] https://finance.yahoo.com/news/3-top-wall-street-strategists-share-their-new-years-resolutions-for-investing-in-2024-162902395.html
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