S&P 500 to see small gain in 2024 as US economic risks rise

NEW YORK, Nov 21 – The S&P 500 will end next year only about 3% higher than its current level, with a possible US economic slowdown or recession among the biggest risks for the market in 2024, according to strategists in a Reuters poll released Tuesday.

The benchmark index will finish next year at 4,700, according to the median forecast of 33 strategists polled by Reuters during the last week and a half. That is 3.4% higher than Monday’s close of 4,547.38.

Nine of 13 strategists who also answered a question on whether US stocks will hit a record high in the coming six months said yes, and most of them said they expect it to happen in the early part of 2024.

Wall Street stocks have rallied strongly in recent weeks, boosted by the view the Federal Reserve is done hiking interest rates and may begin to cut them at some point next year.

Investors cheered benign October inflation data last week as Americans paid less for gasoline. The S&P 500 is up about 18% for 2023 to date.

The Fed earlier in November held rates steady, but, since 2022, the US central bank has hiked its policy rate 525 basis points in an effort to curb inflation.

Worries persist the economy could fall into a recession next year or at least slow.

“We see the economy weakening further into 2024, and, at some point the consumer will break,” said Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute.

But he said the firm thinks the US economy could quickly switch to recovery mode in the second half of the year. WFII sees the S&P 500 ending next year between 4,600 and 4,800.

Markets are anticipating inflation will decelerate and are currently pricing in a greater than 50% chance of a rate cut of at least 25 basis points by May, according to CME’s FedWatch Tool on Monday.

Still, Goldman Sachs’s economic team wrote in a recent note the Fed will hold off cutting rates until the fourth quarter of next year, with stronger-than-expected economic growth helping to forestall a recession.

Geopolitical problems are among other risks to the market heading into 2024, strategists said, with investors closely watching the war between Israel and Hamas militants in Gaza.

Ten of the 13 strategists who responded to a question on the US corporate profit outlook said they expect earnings to grow in the next six months.

Overall S&P 500 earnings growth for 2023 is estimated at 2.3% after a weak first half of the year, according to LSEG data.

Analysts expect earnings to rise 11.2% in 2024 over the previous year.

But valuations have risen with recent market gains. The S&P 500 index’s forward 12-month price-to-earnings ratio is now at 19.1, up from 17 at the end of 2022 and its long-term average of about 16, based on LSEG data.

For some strategists, technology, which is up 52% for the year so far and S&P 500’s best-performing sector, is still a favorite going into 2024.

“The technology revolution continues,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

Based on the poll, the Dow Jones industrial average will finish next year at 38,000, up about 8% from Monday’s close. The Dow is up 6% so far in 2023.

(Reporting by Caroline Valetkevitch; additional reporting by Chuck Mikolajczak, Sinead Carew and Stephen Culp in New York; Additional polling by Pranoy Krishna, Rahul Trivedi, and Sarupya Ganguly in Bengaluru; Editing by Alexandra Hudson)