Business Insider India has updated its Privacy and Cookie policy. We use cookies to ensure that we give you the better experience on our website. If you continue without changing your settings, we\'ll assume that you are happy to receive all cookies on the Business Insider India website. However, you can change your cookie setting at any time by clicking on our Cookie Policy at any time. You can also see our Privacy Policy.
A stock trader at work at the New York Stock Exchange on February 24, 2020.Johannes Eiselle/Getty Images
After a dismal 2022, stocks soared in 2023, with the S&P 500 and Nasdaq 100 jumping more than 20% and 50%, respectively.
A resilient economy, moderating inflation, and the potential peak in interest rates helped investors overcome fears of a potential recession and jump back into stocks. Now the biggest question investors have is whether the strong market rally can continue into 2024, and is an economic slowdown and subsequent stock market crash imminent.
Business Insider has put together a complete rundown of the top Wall Street forecasts for the stock market in 2024.
From economic recessions to the continuation of the bull market, here's what Wall Street expects to happen next year.
The S&P 500 could experience its worst crash since 2008 next year as a recession kicks off, according to the 2024 outlook of BCA Research.
"A recession in the US and euro area was delayed this year but not avoided. Developed markets (DM) remain on a recessionary path unless monetary policy eases very significantly. As such, the risk/reward balance is quite unfavorable for stocks," BCA Research said.
The stock market could avoid such a steep drawdown next year if the Federal Reserve swiftly cuts interest rates, but BCA Research isn't holding its breath as they don't expect inflation to fall quickly.
"We remain in the disinflationary camp, but expect that inflation will not slow quickly enough for the Fed and the ECB to cut rates in time to prevent a significant rise in unemployment. Unless a recession occurs imminently or inflation completely collapses, the Fed is unlikely to cut rates before next summer," BCA Research said.
BCA Research said a recession next year would put the S&P 500 in a range of between 3,300 and 3,700 before an eventual rebound materializes.
Morgan Stanley expects a flat stock market in 2024, but sees some pockets of the stock market performing better than others.
The extremely narrow leadership of the mega-cap tech stocks is likely to continue early next year, but eventually breakdown, according to the firm.
"The question for investors at this stage is whether the leaders can drag the laggards up to their level of performance or if the laggards will eventually overwhelm the leaders' ability to keep delivering in this challenging macro environment," Morgan Stanley said.
"We think these dynamics are likely to persist into early 2024 before a sustainable earnings recovery takes hold (we ultimately see +7% earnings growth next year)," Morgan Stanley said.
Morgan Stanley recommended investors avoid the high-priced tech stocks and instead focus on defensive growth stocks, typically found in the healthcare, utilities, and consumer staples sectors, as well as late-cycle cyclical stocks typically found in the industrials and energy sectors.
Bank of America is bullish on the stock market in 2024 because of how much progress the Federal Reserve has made towards tightening its monetary policy following more than a year of aggressive interest rate hikes and the ongoing reduction of its balance sheet.
We're bullish not because we expect the Fed to cut, but because of what the Fed has accomplished. Companies have adapted to higher rates and inflation," Bank of America's Savita Subramanian said in her 2024 outlook note.
It also helps that investors remain laser focused on a potential economic recession and is focusing more on the bad news than the good news.
"We are past maximum macro uncertainty. The market has absorbed significant geopolitical shocks already and the good news is we're talking about the bad news," Bank of America said.
Strong underlying trends in the stock market are likely to extend well into 2024, according to Federated Hermes' chief equity strategist Phil Orlando.
"We think that stocks are going to grind higher. They've gone from 4100 to 4500. And we think that's a trend that's got legs," Orlando said last month.
Orlando chalked up his bullishness to his belief that the Federal Reserve is done hiking interest rates, given that inflation has cooled considerably from its peak.
"The bond market's done the heavy lifting for [the Fed] since the last Fed rate hike in July. That gives the Fed the luxury, in my view, to step back and say, 'you know what, we don't have to hike any more. We can just sit here on the sidelines for the next year and allow the gradual slowing of inflation to occur," Orlando said.
The stock market will deliver another year of solid gains in 2024 as the second year of the bull market gets underway, even if an economic recession materializes, according to BMO's 2024 outlook.
Falling inflation, falling interest rates, a strong job market and rising corporate earnings are tailwinds that will drive further upside in the stock market next year, according to BMO.
"US stock market performance and fundamentals in 2023 followed the script in our view to lay the foundation for what we continue to believe will be a path of normalcy for earnings growth, valuation trends, and price performance that is likely to unfold over the next three to five years," BMO said.
Copyright @ 2024. Times Internet Limited. All rights reserved.For reprint rights. Times Syndication Service.