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Forget Overvaluation: Wall Street Bulls to Roar in 2024
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Wall Street had a dream run in 2023, reversing the nightmare of 2022. The impressive bull run is set to continue in 2024. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have put impressive performances this year. The S&P 500 and the Nasdaq Composite have provided double-digit returns while the Dow is gradually approaching that mark.
A section of economists and financial experts are concerned that valuations of U.S. stocks are overstretched. But, we believe the rally will gather more steam in the rest of this year.
Solid Fundamentals of the U.S. Economy
On Mar 20, after the FOMC meeting, the Fed kept the benchmark lending rate constant in the range of 5.25-5.5%. However, the Fed’s latest “dot-plot” (a closely watched matrix of anonymous projections from the 19 officials who comprise the FOMC) shows the benchmark lending rate to come down to 4.625% at mid-point by the end of 2024. The existing mid-point of the Fed fund rate is 5.375%. This indicates three rate cuts of 25 basis points each.
Moreover, the central bank raised the U.S. GDP forecast for 2024 to 2.1% in March from 1.4% in December. U.S. GDP rose 2.5% in 2023 compared with 1.9% in 2022. At the beginning of 2023, the consensus estimate for full-year GDP was 2%. On Mar 19, the Atlanta Fed GDPNow tracker forecast a 2.1% growth rate for first-quarter 2024, indicating, no chance of a near-term recession.
Peak inflation is far behind us. The inflation rate currently hovering around 3.5-3.7%, significantly lower than its peak of 9.1% in June 2022. The labor market remains resilient with increasing wage rate. Moreover, consumer spending, the largest driver of the U.S. economy, remains rock solid.
Impressive Projections
In the past month, several noted economists and financial researchers projected an astonishing outlook for Wall Street’s broad-market index — the S&P 500. Barclays raised the S&P 500’s target for 2024 to 5,300 from 4,800 owing to the strong earnings of big techs. The firm said that if tech giants continue to outperform in the upcoming quarters, then its bull case for the benchmark will be 6,050.
Yardeni Research forecasted the S&P 500’s year end 2024 target at 5,400. Thereafter, the index is expected to rise to 6,000 in 2025 and 6,500 in 2026. Capital Economics predicted that the S&P 500 could reach 6,500 by 2025-end if the ongoing euphoria surrounding artificial intelligence (AI), especially generative AI, continues. Société Générale lifted its 2024 target for the benchmark to 5,500 from 4,750.
Picking the Right Stocks
At this stage, several stocks look attractive for future growth. However, two criteria will make the task easy. First, select U.S. technology bigwigs (market capital > $50 billion) that have a well-established business model and globally acclaimed brand recognition. Second, look for stocks that have strong growth potential for 2024 and have seen positive earnings estimate revisions in the past 30 days.
Image: Bigstock
Forget Overvaluation: Wall Street Bulls to Roar in 2024
Wall Street had a dream run in 2023, reversing the nightmare of 2022. The impressive bull run is set to continue in 2024. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have put impressive performances this year. The S&P 500 and the Nasdaq Composite have provided double-digit returns while the Dow is gradually approaching that mark.
A section of economists and financial experts are concerned that valuations of U.S. stocks are overstretched. But, we believe the rally will gather more steam in the rest of this year.
Solid Fundamentals of the U.S. Economy
On Mar 20, after the FOMC meeting, the Fed kept the benchmark lending rate constant in the range of 5.25-5.5%. However, the Fed’s latest “dot-plot” (a closely watched matrix of anonymous projections from the 19 officials who comprise the FOMC) shows the benchmark lending rate to come down to 4.625% at mid-point by the end of 2024. The existing mid-point of the Fed fund rate is 5.375%. This indicates three rate cuts of 25 basis points each.
Moreover, the central bank raised the U.S. GDP forecast for 2024 to 2.1% in March from 1.4% in December. U.S. GDP rose 2.5% in 2023 compared with 1.9% in 2022. At the beginning of 2023, the consensus estimate for full-year GDP was 2%. On Mar 19, the Atlanta Fed GDPNow tracker forecast a 2.1% growth rate for first-quarter 2024, indicating, no chance of a near-term recession.
Peak inflation is far behind us. The inflation rate currently hovering around 3.5-3.7%, significantly lower than its peak of 9.1% in June 2022. The labor market remains resilient with increasing wage rate. Moreover, consumer spending, the largest driver of the U.S. economy, remains rock solid.
Impressive Projections
In the past month, several noted economists and financial researchers projected an astonishing outlook for Wall Street’s broad-market index — the S&P 500. Barclays raised the S&P 500’s target for 2024 to 5,300 from 4,800 owing to the strong earnings of big techs. The firm said that if tech giants continue to outperform in the upcoming quarters, then its bull case for the benchmark will be 6,050.
Yardeni Research forecasted the S&P 500’s year end 2024 target at 5,400. Thereafter, the index is expected to rise to 6,000 in 2025 and 6,500 in 2026. Capital Economics predicted that the S&P 500 could reach 6,500 by 2025-end if the ongoing euphoria surrounding artificial intelligence (AI), especially generative AI, continues. Société Générale lifted its 2024 target for the benchmark to 5,500 from 4,750.
Picking the Right Stocks
At this stage, several stocks look attractive for future growth. However, two criteria will make the task easy. First, select U.S. technology bigwigs (market capital > $50 billion) that have a well-established business model and globally acclaimed brand recognition. Second, look for stocks that have strong growth potential for 2024 and have seen positive earnings estimate revisions in the past 30 days.
The five stocks that fulfill these criteria are: NVIDIA Corp. (NVDA - Free Report) , Meta Platforms Inc. (META - Free Report) , Super Micro Computer Inc. (SMCI - Free Report) , Micron Technology Inc. (MU - Free Report) and Synopsys Inc. (SNPS - Free Report) .