Amidst a year of market fluctuations, the S&P 500 has achieved a notable four-month high, sparking optimism among analysts for continued momentum and potential record-breaking highs in 2024.
Defying Expectations: A Look at 2023's Market Performance
The year 2023 has been a surprise for investors and analysts alike.
Contrary to the widespread expectations of a recession and persistent inflation, the markets have shown remarkable resilience. "2023 defied almost everyone’s expectations," noted Candace Browning, head of Bank of America global research.
The year sidestepped the feared recession, and inflation showed signs of easing, contrary to earlier predictions. This unexpected turn of events has led analysts from Wall Street banks like RBC, Bank of America, BMO Capital Markets, and Deutsche Bank to forecast a continued positive trajectory for the S&P 500, even suggesting it might reach new all-time highs in the coming year.
Goldman Sachs analysts have expressed similar sentiments, seeing "only limited recession risk" of about 15% in 2024.
The Bullish Outlook for 2024
The optimism for 2024 hinges on several factors. Analysts predict that inflation will continue to slow down, allowing central banks to lower interest rates while maintaining price stability and avoiding an economic downturn.
"We expect 2024 to be the year when central banks can successfully orchestrate a soft landing," Browning added. Lori Calvasina at RBC Capital Markets anticipates a roughly 10% gain for the S&P 500 over the next 12 months, ending 2024 at around 5,000 points, while the current record closing high is 4,797.
Savita Subramanian from Bank of America and Brian Belski from BMO Capital Markets have similar projections, with Belski predicting an even higher closing at 5,100. This bullish market outlook is not solely based on the anticipated actions of the Federal Reserve but also on the ability of corporations to adapt to changes in Fed policy while maintaining strong earnings.
Earnings Analysis and Sector Growth
The recent earnings season has marked a return to normalcy for S&P 500 companies after years of pandemic disruptions, inflation challenges, and economic uncertainties. The number of firms discussing inflation during earnings calls has dropped significantly, as noted by FactSet data.
Analysts are predicting corporate earnings growth of 6.7% for the first quarter of 2024 and 10.5% for the second quarter. This optimism is not limited to a few sectors; all eleven sectors of the S&P 500 are projected to report year-over-year earnings growth by the second quarter of next year.
The S&P 500's performance in 2023, with a gain of approximately 18.5% after a nearly 20% fall in 2022, sets a promising stage for 2024. This forward-looking sentiment is bolstered by the expectation of continued strong corporate earnings and a supportive economic environment, painting a bullish picture for the S&P 500 in the coming year.