Strategists from leading firms such as Bank of America Corp, Deutsche Bank AG, and Goldman Sachs Group Inc have shared their forecasts for 2024, leading to a consensus: After an impressive rise of over 20% driven by breakthroughs in artificial intelligence and an economy that outperformed negative predictions, the S&P 500 Index is expected to see only a slight gain.

With the US Federal Reserve pivoting towards interest rate reductions, Treasuries are viewed as potentially competing with equities.

However, Wall Street analysts endured another wake-up call, having been surprised by the market’s fluctuations since the pandemic ended.

Equity prices maintained their momentum; they continued to increase.

By late January, the S&P 500 had already surpassed the average year-end target set by strategists. It went on to hit record highs and is projected to achieve a 25% increase in 2024, marking the strongest consecutive yearly performance since the late 1990s dot-com era.

“There’s an element of miraculousness to it,” mentioned Julian Emanuel, chief equity and quantitative strategist at Evercore ISI, who adjusted his mid-year forecast of a slight decline for the S&P 500, becoming the first major strategist to set a year-end target of 6,000. “Trends can last longer and reach heights beyond our imagination.”

Discover our complete market coverage here.

The ongoing trend exhibits the unexpected resilience of the post-pandemic economy, which continues to thrive even as the Fed has raised interest rates to their highest levels in over 20 years.

As 2023 came to a close, with bonds surging on speculation of aggressive policy easing from the central bank, fixed-income strategists had anticipated the benchmark 10-year Treasury yield would drop to around 3.8%. Instead, it rose to over 4.6%.

This economic vitality has strengthened corporate profits, contributing to the stock market’s upsurge. At the same time, excitement for AI has driven the stocks of major tech companies like Alphabet Inc, Amazon.com Inc, Apple Inc, Meta Platforms Inc, and Nvidia Corp higher.

The rally received an extra boost with Donald Trump’s presidential win, which brought promises of tax reductions and business-friendly policies.

Read:
Nvidia rides AI wave to pass Apple as the world’s largest company
Nvidia is helping Google design quantum computing processors

This shift has largely lessened the bearish sentiment on Wall Street, prompting some strategists to revise their pessimistic outlooks.

Morgan Stanley’s Mike Wilson, who had consistently issued warnings in 2023 about probable declines in equities, grew bullish on stocks by May. Meanwhile, JPMorgan Chase & Co’s Marko Kolanovic, who forecasted a 12% drop in the S&P 500 by December, left the bank in mid-2024 after two decades. In late November, Dubravko Lakos-Bujas, who now heads JPMorgan’s market research team, revised his earlier bearish target, predicting ongoing growth for the S&P 500 next year.

Lakos-Bujas observed that some of the team’s miscalculations stemmed from the unexpected rally of the so-called Magnificent Seven tech stocks, which have significantly influenced the S&P 500’s increases. However, he identified solid reasons for optimism ahead, including a more lenient Fed, political shifts in Washington, and a proactive Chinese government aiming to sustain economic growth.

“We essentially have three safety nets in position,” Lakos-Bujas remarked, predicting the S&P 500 will reach 6,500 next year, reflecting a gain of about 9% from Friday’s levels. This has “shifted our strategic perspective regarding risky assets and equities.”

It wasn’t solely the pessimists who were caught off guard. Almost every leading strategist tracked by Bloomberg revised their S&P 500 targets upward at least once this year as the index consistently surpassed expectations.

When the targets were initially disclosed in late 2023, even the most optimistic forecasters at that time, such as Fundstrat’s Tom Lee and Oppenheimer’s John Stoltzfus, projected only a modest 9% rise in the S&P 500 to approximately 5,200 — a target that the index exceeded in less than three months.

There were instances when the stock market seemed ready for a dip, but these proved to be short-lived. Although the S&P 500 saw a retreat from mid-July to early August, it quickly regained its upward momentum as apprehensions regarding tech earnings eased. A selloff prompted by Fed Chair Jerome Powell’s hawkish remarks this month was also quickly reversed.

The steep ascent has raised alarms that valuations may be overly stretched, especially for companies associated with AI, amidst uncertainties about the technology’s long-term effectiveness. Moreover, the market’s optimistic view of Trump’s victory may overlook the potential risks tied to his tax and tariff policies, which could stir inflation and disrupt global trade.

Nevertheless, very few anticipate the rally’s end. In fact, none of the 19 strategists monitored by Bloomberg predict a decline in the S&P 500 next year. Even the most conservative outlook forecasts stability for the benchmark; the most bullish prediction, set at 7,100, implies a 19% rise.

Binky Chadha, chief US equity and global strategist at Deutsche Bank, has maintained a positive stance on Wall Street for the past three years. His target for 2025, established at 7,000 points, reflects his faith in sustained economic expansion and low unemployment. He is confident about not being caught off guard.

Forecasting the markets necessitates a “one year at a time” strategy, he remarked. “Usually, equities undergo pullbacks of 3% to 5% every two to three months. Does that imply you shouldn’t invest in equities? Absolutely not, you should, because they will rebound.”

© 2024 Bloomberg

Stay connected with Moneyweb’s extensive finance and business news on WhatsApp here.