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It's been a topsy-turvy year for markets, but the S&P 500 hit a four-month high last week and a growing chorus of analysts says that momentum will continue into 2024.
A few of them even believe that the benchmark index will reach a new all-time high next year.
What's happening: Investors entered this year uncertain about the economy, but things turned out better than expected. A feared recession didn't happen and inflation eased.
"2023 defied almost everyone's expectations: recessions that never came, rate cuts that didn't materialize, bond markets that didn't bounce, except in short-lived, vicious spurts, and rising equities that pained most investors who remained cautiously underweight," said Candace Browning, head of Bank of America global research.
Analysts at several Wall Street banks think inflation will continue slowing into next year. They predict that central banks will lower interest rates while keeping prices stable and without causing an economic downturn.
"We expect 2024 to be the year when central banks can successfully orchestrate a soft landing, though recognize that downside risks may outnumber the upside ones," said Browning.
That's good news for markets. RBC, Bank of America, BMO Capital Markets and Deutsche Bank all predict that the S&P 500 will hit an all-time high next year.
Goldman Sachs analysts added that "the hard part" is over for the US economy. They see "only limited recession risk" of about 15% in 2024.
What analysts are saying: "While the November rally has likely pulled forward some of 2024's gains, we remain constructive on the US equity market in the year ahead," wrote Lori Calvasina at RBC Capital Markets in a note last week.
She expects the S&P to gain about 10% over the next 12 months, ending 2024 at 5,000. The S&P 500 currently sits around 4,550.
Bank of America's Savita Subramanian echoed that bullish sentiment, writing on Monday that she forecasts the S&P 500 will also end the year at an all-time high of 5,000 (the current record closing high of 4,797 was reached in January 2022).
Markets won't necessarily rise because the Federal Reserve is expected to begin cutting rates next year, said Subramanian, but because corporations have already proven that they can successfully adapt to changes in Fed policy while reporting strong earnings.
BMO's chief investment strategist Brian Belski has predicted that the S&P 500 will close out 2024 at a healthy 5,100.
"We believe 2024 will be year two of at least a 3-5 year process that will see US stocks exhibit more normal and typical performance, paced by a backdrop of normal and typical GDP and earnings growth, valuation, and bond yield ranges," he wrote in his market outlook.
Analysts at Deutsche Bank also predict that 2024 will be for the bulls, ending around 5,100.
Analyzing earnings: This earnings season marked a return toward normal for S&P 500 companies after the past few years of pandemic shutdowns, inflation woes and recession confusion.
The number of firms discussing inflation during their earnings calls was the lowest it has been since the second half of 2021, and recession talk fell for the fifth straight quarter in a row, according to FactSet data.
Analysts are predicting (year-over-year) corporate earnings growth of 6.7% for the first quarter of 2024 and growth of 10.5% for the second quarter of next year, found FactSet.
All eleven sectors are projected to report year-over-year earnings growth by the second quarter next year, according to the data analytics company.
The S&P 500 has gained about 18.5% so far this year after falling nearly 20% in 2022.
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