The S&P 500 is up 18.8% this year (as of Nov 24, 2023) due to cooling in inflation, less-hawkish Fed, an AI boom, tech rally and an improvement in the corporate earnings. As we are currently at the last leg of 2023, it is far enough to think about what lies ahead of the S&P 500 in 2024. Bullish sentiment had started to recover by mid-November. More than 43% of respondents said they were bullish on stocks over the next six months.
Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets and Bank of America's Savita Subramanian believe that the S&P 500 may hit 5,000 by the end of 2024, as quoted on MarketWatch, published on Morningstar. This marks a 9.7% uptick from 4,559.34 recorded on Nov 24, 2023.
Let’s delve a little deeper.
Record High Predictions for S&P 500
RBC Capital Markets is expecting the S&P 500 to reach a historic high in the year 2024. Their prediction is that the index will jump to the 5,000 level, which represents a considerable increase of 10% from its value at the time of their prediction,
as quoted on Business Insider, published on Yahoo Finance. Rally and Future Expectations
RBC acknowledges that the S&P 500's strong performance in November, where it witnessed over a 10% increase, might have accelerated some of the gains expected for 2024. However, they still maintain an optimistic outlook for the index in the coming year.
Analytical Basis for RBC's Forecast
The positive forecast by RBC is based on five different analytical models. These models consider various factors like market sentiment, valuation and earnings, the overall economic environment, political scenarios, and the relationship between stocks and bonds.
Valuation and Inflation Considerations
RBC suggests that the market's valuation, in terms of how stocks are priced relative to their earnings, could remain high. They believe that a decrease in inflation rates will play a crucial role in supporting these high valuations, based on historical precedents from the 1970s. RBC also noted that equity valuations can stay higher than many investors currently realize.
Bond Market Impact on Equities
The note addresses the bond market, where yields have been fluctuating. Despite these fluctuations, RBC does not see a significant negative impact on the attractiveness of equities (stocks). They cite historical data showing that stocks have generally performed well even when bond yields offer competitive returns.
Presidential Election Year Influence
The 2024 U.S. presidential election is seen as a potential source of uncertainty for the stock market. RBC notes that, on average, the S&P 500 tends to grow by about 7.5% during presidential election years, which is less than its typical growth rate. This suggests that election years bring a level of uncertainty that can affect market performance.
ETFs in Focus
Against this upbeat backdrop, investors may track S&P 500 ETFs like
Vanguard S&P 500 ETF ( VOO Quick Quote VOO - Free Report) , iShares Core S&P 500 ETF ( IVV Quick Quote IVV - Free Report) and SPDR S&P 500 ETF Trust ( SPY Quick Quote SPY - Free Report) . Investors can also play the growth part of the index with SPDR Portfolio S&P 500 Growth ETF ( SPYG Quick Quote SPYG - Free Report) and the value part of the index with SPDR Portfolio S&P 500 Value ETF ( SPYV Quick Quote SPYV - Free Report) . SPDR Portfolio S&P 500 High Dividend ETF Fund ( SPYD Quick Quote SPYD - Free Report) is a good bet for the dividend plays of the index. Investors can also bet on the leveraged S&P 500 ETFs like Direxion Daily S&P 500 Bull 3X Shares ( SPXL Quick Quote SPXL - Free Report) , ProShares Ultra S&P500 ( SSO Quick Quote SSO - Free Report) and ProShares UltraPro S&P500 ( UPRO Quick Quote UPRO - Free Report) if the index is on an uptrend. Any Wall of Worry?
Although a few research houses are bullish the S&P 500’s rally in 2024, likelihood of U.S. recession or slowdown, dearth of rapid Fed policy easing, uncertainty regarding U.S. presidential election in 2024, any new political or geopolitical crisis may complicate things. JPMorgan says S&P 500 will fall next year amid 'challenging macro backdrop',
as quoted on Yahoo Finance. (Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)