Strategists from major firms such as Bank of America Corp, Deutsche Bank AG, and Goldman Sachs Group Inc have begun sharing their forecasts for 2024, and a consensus has developed: After an impressive rise of over 20% driven by advancements in artificial intelligence and a surprisingly resilient economy, the S&P 500 Index is expected to secure only a modest increase moving forward.
As the US Federal Reserve shifts toward interest rate reductions, Treasuries are seen as potential rivals to equities.
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Wall Street analysts, however, had to face yet another humbling moment, having been taken by surprise by the market’s movements since the end of the pandemic.
Equity prices maintained their momentum; they continued to climb.
By the end of January, the S&P 500 had already outperformed the average year-end target set by strategists. It eventually hit all-time highs and is projected to achieve a 25% increase in 2024, marking the strongest consecutive annual performance since the late 1990s dot-com bubble.
“There is something almost miraculous about it,” stated Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, who revised his mid-year forecast predicting a slight dip for the S&P 500 and became the first major strategist to aim for a year-end level of 6,000. “Trends can persist longer and reach extraordinary heights.”
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The ongoing strength of this trend highlights the unanticipated resilience of the post-pandemic economy, which continues to expand even as the Fed implemented interest rate hikes not seen in over two decades.
As 2023 came to a close, with bonds climbing amid speculation of aggressive policy easing by the central bank, fixed-income strategists had projected the benchmark 10-year Treasury yield to drop to approximately 3.8%. Instead, it surged beyond 4.6%.
This economic robustness has supported corporate profits, contributing to the stock market’s ascent. Concurrently, excitement surrounding AI has driven up shares of major tech firms like Alphabet Inc, Amazon.com Inc, Apple Inc, Meta Platforms Inc, and Nvidia Corp.
The rally received an additional lift from Donald Trump’s presidential victory, which heralded promises of tax cuts and pro-corporate policies.
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This shift has significantly reduced bearish sentiment on Wall Street, prompting some strategists to revise their negative outlooks.
Morgan Stanley’s Mike Wilson, who consistently warned in 2023 that equities were likely to decline, shifted to a bullish stance on stocks by May. Meanwhile, JPMorgan Chase & Co’s Marko Kolanovic, who had predicted a 12% drop in the S&P 500 by December, departed the bank in mid-2024 after two decades. In late November, Dubravko Lakos-Bujas, now heading JPMorgan’s market research team, updated his previously bearish target, predicting continued growth for the S&P 500 in the coming year.
Lakos-Bujas acknowledged that some of the team’s miscalculations stemmed from the unexpected rise of the so-called Magnificent Seven tech stocks, which have greatly influenced the S&P 500’s gains. Nevertheless, he highlighted several reasons for optimism ahead, including a more accommodating Fed, political changes in Washington, and a proactive Chinese government seeking to sustain economic growth.
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“We effectively have three safety nets in place,” Lakos-Bujas remarked, forecasting the S&P 500 to reach 6,500 next year, indicating a potential gain of roughly 9% from Friday’s values. This alteration in perspective has “shifted our strategic thinking regarding risky assets and equities.”
It wasn’t solely the pessimists who were caught off guard. Nearly every leading strategist monitored by Bloomberg revised their S&P 500 targets upwards at least once throughout the year as the index frequently surpassed expectations.
When the targets were initially made public in late 2023, even the most optimistic forecasters at the time, like Fundstrat’s Tom Lee and Oppenheimer’s John Stoltzfus, had anticipated merely a modest 9% increase in the S&P 500 to around 5,200 — a target that the index exceeded in less than three months.
There were moments when the stock market seemed on the verge of a downturn, but these proved to be short-lived. Although the S&P 500 did retreat from mid-July to early August, it quickly regained its upward momentum as worries regarding tech earnings eased. Similarly, a selloff triggered by Fed Chair Jerome Powell’s hawkish remarks this month was swiftly reversed.
This sharp ascent has raised concerns that valuations may have become excessively stretched, particularly for companies connected to AI, amidst uncertainties regarding the technology’s long-term effectiveness. Additionally, the market’s optimistic view of Trump’s victory may overlook the potential risks posed by his tax and tariff policies, which could reignite inflation and hinder global trade.
Still, very few are predicting an end to the rally. In fact, none of the 19 strategists followed by Bloomberg foresee a decline in the S&P 500 next year. Even the most cautious forecasts suggest stability, while the most optimistic prediction, set at 7,100, indicates a 19% rise.
Binky Chadha, chief US equity and global strategist at Deutsche Bank, has upheld a bullish outlook for Wall Street over the past three years. His 2025 target, set at 7,000 points, reflects his conviction in ongoing economic growth and low unemployment, with a belief in avoiding being caught off-guard.
Forecasting the markets necessitates a “one year at a time” strategy, he noted. “Typically, equities undergo pullbacks of 3% to 5% every couple of months. Does that imply you shouldn’t invest in equities? No, indeed you should, as they will rebound.”
© 2024 Bloomberg
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