S&P 500's 2024 Rally Catches Analysts Off Guard Amid Slowdown Expectations -

As strategists from prominent firms such as Bank of America Corp, Deutsche Bank AG, and Goldman Sachs Group Inc share their forecasts for 2024, a consensus has emerged: After an impressive climb of more than 20% driven by innovations in artificial intelligence and a surprisingly resilient economy, the S&P 500 Index is expected to achieve only a modest increase.

With the US Federal Reserve moving toward interest rate reductions, Treasuries are seen as potentially competitive with stocks.

Wall Street analysts faced yet another round of humbling experiences, having been taken aback by market fluctuations since the end of the pandemic.

Equity prices maintained their momentum and continued to rise.

By late January, the S&P 500 had already surpassed the average year-end target established by strategists. It subsequently reached new highs and is projected to see a 25% increase in 2024, marking its strongest consecutive annual performance since the late 1990s dot-com era.

“There is a miraculous aspect to it,” stated Julian Emanuel, the chief equity and quantitative strategist at Evercore ISI, who revised his mid-year estimate of a slight decline for the S&P 500, becoming the first major strategist to project a year-end target of 6,000. “Trends can last longer and reach levels beyond what we can envision.”

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The durability of this trend underscores the unexpected resilience of the post-pandemic economy, which continues to expand even as the Fed raised interest rates to levels not seen in over two decades.

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

This economic vigor has strengthened corporate profits, propelling the stock market higher. At the same time, interest in AI has boosted the shares of major tech firms including Alphabet Inc, Amazon.com Inc, Apple Inc, Meta Platforms Inc, and Nvidia Corp.

The rally also received a lift from Donald Trump’s presidential victory, which promised tax reductions and business-friendly policies.

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This shift has significantly reduced bearish sentiment on Wall Street, prompting some strategists to revise their pessimistic outlooks.

Mike Wilson of Morgan Stanley, who had consistently cautioned in 2023 that stocks were likely to decline, turned bullish on equities by May. Meanwhile, Marko Kolanovic of JPMorgan Chase & Co, who predicted a 12% decrease in the S&P 500 by December, left the bank in mid-2024 after a two-decade tenure. In late November, Dubravko Lakos-Bujas, now leading JPMorgan’s market research team, adjusted his previously bearish stance, projecting continued growth for the S&P 500 next year.

Lakos-Bujas mentioned that some of the team’s miscalculations were due to the unforeseen rise of the Magnificent Seven tech stocks, which significantly contributed to the S&P 500’s growth. He also highlighted solid reasons for optimism moving forward, including a more accommodating Fed, political shifts in Washington, and an active Chinese government aiming to sustain economic expansion.

“We effectively have three safety nets in place,” Lakos-Bujas stated, forecasting the S&P 500 to reach 6,500 next year, representing an approximate 9% gain from Friday’s levels. This has “shifted our strategic thinking regarding risky assets and equities.”

It wasn’t only the pessimists who were caught unawares. Almost every top strategist tracked by Bloomberg adjusted their S&P 500 targets upwards at least once this year, as the index consistently surpassed expectations.

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

There were points when it seemed the stock market was set for a downturn, but those moments were brief. Although the S&P 500 saw a drop from mid-July to early August, it quickly regained its upward momentum as worries about tech earnings faded. A selloff triggered by Fed Chair Jerome Powell’s hawkish remarks this month was also rapidly reversed.

This sharp ascent has led to concerns that valuations may have become excessively inflated, especially for companies affiliated with AI, amid uncertainty regarding the technology’s long-term effectiveness. Additionally, the market’s optimistic view of Trump’s victory overlooks potential risks associated with his tax and tariff strategies, which could reignite inflation and disrupt global trade.

Nevertheless, very few are predicting an end to the rally. In fact, none of the 19 strategists tracked by Bloomberg expect a decline in the S&P 500 next year. Even the most conservative forecast suggests the benchmark will remain stable, while the most optimistic outlook, set at 7,100, indicates a 19% rise.

Binky Chadha, chief US equity and global strategist at Deutsche Bank, has upheld a positive outlook on Wall Street for the past three years. His target for 2025, set at 7,000 points, reflects his faith in ongoing economic growth and low unemployment. He expresses confidence in not being caught off guard.

Forecasting the markets demands a “one year at a time” mindset, he notes. “Typically, equities experience pullbacks of 3% to 5% every two to three months. Does that mean you shouldn’t invest in equities? No, you should, because they will recover.”

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