The equity market has recovered from a lean patch seen in the August-October period and is on track to finish the year with a flourish.
Bulls Gains Upper Hand In 2023: Ahead of the start of the year, analysts held a rather muted outlook, given their expectation that a recession may be in the cards. Since then, most on the sell-side have ratcheted up their expectations.
With just December to get by, the S&P 500 has outperformed consensus expectations. The primary drivers of the year’s upside have been mega-cap tech stocks, which roared back to life after a lackadaisical 2022. In the past year, investors remained cautious as the Fed successively raised rates, beginning in March 2022.
The weak investor sentiment seen in 2022 was a function of the economic uncertainties that hurt consumers as well as businesses. Companies responded to the setback by implementing efficiency measures that kept costs in check. In the process, they were able to preserve their profitability even as their revenues stagnated.
Things began to take a turn for the better in 2023. After declining 19.4% in 2022, the S&P 500 has gained 19.7% so far this year.
Chart Courtesy of Benzinga
The most bullish S&P forecast for 2023 is from Fund Strat analyst Tom Lee, who sees the index going all the way up to 4,825. If his optimistic forecast proves right, the index would be up 25.7% for the year, and between now and December, the index could be in for another 5% gain.
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What Lies Ahead: As the year draws to the close and the new year waits in the wings, analysts’ 2024 expectations for the S&P 500 have been mixed.
JPMorgan has one of the most pessimistic forecasts for 2024, with expectations that the S&P 500 index will end the year at 4,200. The firm premised its muted expectations on the rich valuations of stocks, especially in light of the “aging business cycle, restrictive monetary policy, and geopolitical risks.”
The most bullish forecasts come from firms including Capital Economics, BMO Capital Economics, Deutsche Bank, BofA and RBC Capital Markets. These firms have S&P 500 forecasts of 5,000 or above, according to a post by TKer, a firm that shares market data and information.
The price targets of Wall Street firms are as follows:
- JPMorgan: 4,200
- Morgan Stanely 4,500
- UBS: 4,600
- Wells Fargo: 4,625
- Goldman Sachs: 4,700
- Societe Generale: 4,750
- Barclays: 4,800
- BofA, RBC Capital Markets: 5,000
- BMO, Deutsche Bank: 5,100
- Capital Economics: 5,500
The rally seen in the market in November is in part due to investors pricing in Fed rate cuts in the near- to mid-term. Continued decline in inflationary pressure should allow the Fed to reverse its rate hikes, which has pushed the fed fund rate to a 22-year high of 5.25%-5.50%.
Comerica Chief Economist Bill Adams suggested in a recent note that the path may be clear for the Fed to cut rates in 2024. The analysts see the central bank taking down the fed funds rate by 75% points in 2024, with the first quarter-point cut coming in June 2024. A few economists even foresee the scope for more cuts in the upcoming year.
In such a scenario, the markets could launch into an unhindered rally in the new year. If the economy skirts a recession and inflation falls to align itself with the Fed’s target, risk appetite could perk up, proving salubrious for stocks.
The SPDR S&P 500 ETF Trust (NYSE:SPY), an exchange-traded fund that tracks the performance of the S&P 500 Index, ended Friday’s session up 0.59% at $459.10, according to Benzinga Pro data.
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