Street's 2024 stock market predictions

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.

JPMorgan said high equity valuations, high interest rates, a weakening consumer, rising geopolitical risks, and a potential recession give it little confidence that stocks will move higher in 2024.

"We expect a more challenging macro backdrop for stocks next year with softening consumer trends at a time when investor positioning and sentiment have mostly reversed," JPMorgan's Marko Kolanovic and Dubravko Lakos-Bujas said in their 2024 outlook note.

"Equities are now richly valued with volatility near the historical low, while geopolitical and political risks remain elevated. We expect lackluster global earnings growth with downside for equities from current levels," JPMorgan said. 

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 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.

Market strategist Barry Bannister of Stifel expects the S&P 500 to rise in the first half of 2024 before topping out at around 4,650, representing potential upside of less than 2% from current levels.

Bannister said mega-cap growth stocks will underperform relative to cyclical value stocks found in financials, energy, materials, and real estate sectors, and that the Federal Reserve won't cut interest rates in the first half of the year.

"We expect a range-bound S&P 500 in real terms to continue into the early 2030s. Such an environment of reflationary economic growth historically benefits value, small cap, and international equities, albeit with weaker overall S&P 500 returns than the growth-led 14.1% annualized real total return experienced in the decade 2011 - 2021, a high level of returns that we believe is gone for a generation," Bannister said. 

Ned Davis Research said all eyes will be on the Federal Reserve throughout 2024 as Chairman Jerome Powell attempts to navigate a soft landing. NDR sees a 70% chance of that happening. 

"Lower inflation should allow the Fed to cut rates and the 10-year Treasury to fall toward 3.5%. A soft landing should permit the cyclical bull market to continue. Our year-end S&P 500 target is 4900, about 7% above current levels," NDR said.

NDR expects the US economy to post GDP growth of as much as 1.5% in 2024, and added that the first half of the year could be more choppy than the second half as the presidential election gets underway. NDR recommends investors keep an eye on small cap and cyclical stocks.

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.

The stock market's strong 9% rally in November may have pulled forward some of 2024's potential gains, but there's still further upside ahead, according to RBC's 2024 outlook.

The main driver behind the expected gains next year could be a continued decline in the inflation rate.

"Implicit in [our valuation] model is the idea that continued moderation in inflation can do most of the heavy lifting to prop up the P/E multiple, something our analysis suggests happened back in the 1970's," RBC said. "This model has been the most constructive one in our arsenal on the 2023 forecast, and may very well end up being the most accurate if Santa shows up in December instead of the Grinch."

The Canadian bank added that while the 2024 presidential election could add uncertainty to the market, the S&P 500 saw an average gain of around 7.5% in presidential election years.

"What this stat tells us is that any given Presidential election year is a source of uncertainty for the US equity market. Given all of the unusual aspects of the 2024 contest, that seems like an appropriate way to think about the political backdrop for stocks in 2024," RBC 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.

Goldman Sachs now expects the S&P 500 to finish 2024 about 8% higher from current levels as inflation falls, corporate profits rise, as the Fed shifts to a more dovish position.

The bank had previously set its 2024 S&P 500 price target to 4,700, representing expectations of a mostly flat year for stocks, but just one month later the bank upped its price target to 5,100.

Goldman said a slew of recent economic data showed that inflation is quickly cooling down to the Fed's long-term 2% target.

"By some measures the trend is already at or near 2%," Goldman Sachs said.

The swift change to Goldman's projections was sparked by the Fed turning dovish at their FOMC meeting last week as inflation continues to moderate and interest rates fall.

"Decelerating inflation and Fed easing will keep real yields low and support a price-to-earnings multiple greater than 19x," Goldman Sachs said. "Our prior year-end 2024 forecast assumed yields of 2.3% and a price-to-earnings [multiple] of 18x."

The US economy is approaching a soft landing as inflation cools and GDP growth remains solid, and that's a great scenario for the stock market, according to Deutsche Bank's 2024 stock market outlook.

And even if an economic recession does materialize in 2024, it shouldn't impact stock prices dramatically because most investors are anticipating it, the bank said.

The bank expects the S&P 500 to rise about 10% in 2024 to 5,100, and if the economy dodges a recession, the gains could nearly double to about 19% in its bull-case scenario.

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.

Fundstrat's Tom Lee is once again the most bullish strategist on Wall Street. His S&P 500 price target of 5,200 represents gains of about 14% from current levels.

Lee said most of the gains are likely to come in the second half of the year as the Federal Reserve shifts from an "inflation war" to "business cycle management." That means interest rate cuts are more likely next year. 

Meanwhile, the economy should be on solid footing. 

"Pent-up demand suggests we are more early cycle, not late cycle," Lee said. And as investors wake up to that fact, evidenced by continued resilience in corporate earnings and solid consumer spending, they should start to buy stocks.

"Investors allocate into equities, particularly retail who withdrew $240 billion in 2023," he added. "We expect equities to surprise consensus to the upside in 2024, delivering 12% to 15% returns."

Oppenheimer's chief investment strategist John Stoltzfus expects record highs and a gain of at least 13% in 2024.

"After nearly a two-year hiatus, the bull appears ready to run in the US through the election year," he said in his 2024 outlook note.

Stoltzfus derived his 2024 S&P 500 price target from an earnings projection of $240 per share, representing growth of about 9% from 2023 levels, and a price-to-earnings multiple of 21.7x. 

He added that moderating inflation, a resilient economy, and interest rate cuts from the Fed next year help bolster his bullish outlook, though monetary easing won't happen as soon as some might think.

"Our expectations are for the Fed to wait to cut its benchmark rate until at least the second half of next year and perhaps as late as the fourth quarter should inflation prove stickier. Expectations among some market participants for a series of rate cuts in the first half appear too rosy in our view," Stoltzfus said. 

"After 11 rate hikes and 3 'skips' the Fed may well be on pause for longer than many expect."