The S&P 500 index is set to rally to 5,200 by the end of 2024, implying a nearly 13% gain from its current level, according to strategists at Oppenheimer Asset Management, who join a rush of Wall Street analysts expecting all-time highs for U.S. stocks next year.
“We look for 2024 to be a year of transition as markets navigate what we expect will be the Fed’s pivot from a restrictive monetary policy setting to an easier stance,” said strategists led by John Stoltzfus, chief investment strategist and managing director at Oppenheimer.
Their call assumes that the slowing economic growth evident in early data for the fourth quarter of 2023 will extend into 2024, further dampening the inflationary pressures that necessitated the Fed’s tight policy, the strategists wrote in a Monday note to clients.
Stoltzfus and his team expect the Federal Reserve to move to lower interest rates by the second half of 2024, and perhaps as late as the fourth quarter of next year. Their view is contrary to the market expectation of a first rate cut in the first quarter.
“Expectations among some market participants for a series of rate cuts in the first half appear too rosy in our view, with an interim cut or even an upward tweak in rates more likely to take place before the Fed is finally done with the current benchmark rate hike cycle,” Stoltzfus and his team said.
“We still can’t rule out the possibility that the central bank may have to nudge rates slightly higher early in the year if inflation doesn’t continue its downward trend,” they added.
On Monday, fed-funds futures traders saw a 98% probability that the central bank will leave interest rates unchanged at 5.25%-5.5% at its meeting this week, and a 94% chance of no action by January. However, the chance of at least a 25-basis-point cut by March was seen at 38.4%, down from 57.4% a week ago, according to the CME FedWatch Tool.
Specifically in stocks, Stoltzfus and his team expect cyclical sectors such as technology, communications services and consumer-discretionary, which have led the stock-market gains in 2023, to continue to do well next year, even as gains broaden to other sectors and to small- and midcap stocks.
But against the economic and interest-rate backdrop, Oppenheimer’s strategists expect corporate revenues and earnings to continue to grow over the course of 2024. They foresee earnings for S&P 500 SPX companies to reach $240 per share and the price-to-earnings ratio for the large-cap index to expand toward 21.7 times 12-month forward earnings in 2024.
The S&P 500 index is now trading at over 18 times forward earnings, according to FactSet data.
Stoltzfus is one of the most bullish strategists on Wall Street, and he correctly forecast this year’s rally. He now joins Fundstrat’s Tom Lee, an enduring equity bull, in holding one of the most optimistic outlooks for 2024. Their target for the S&P 500 for the end of next year is 6.1% higher than the 4,902 average forecast of 14 sell-side strategists polled by MarketWatch on Monday.
Their prediction for big gains in 2024 was also followed by an ultra-bullish forecast from Ed Yardeni of Yardeni Research, who sees the S&P 500 hitting 5,400 points next year and 6,000 by 2025.
The S&P 500 was rising 0.1% to 4,609 early Monday afternoon, while the Dow Jones Industrial Average DJIA was gaining 0.2% to 36,322, and the Nasdaq Composite COMP was down 0.1%, according to FactSet data.