- There are three catalysts bound to push stocks higher in 2024, Wall Street strategists say.
- Forecasters are predicting the S&P 500 could notch a new high by the end of next year.
- That’s thanks to AI, Fed rate cuts, and a potential soft-landing scenario for the economy.
Wall Street’s strategists are betting on stocks moving higher in 2024. That’s thanks to a trio of bullish factors coming for the market, which are poised to vault equity prices higher, forecasters say.
Optimism has continued to grow among investors, despite lingering threats of a recession and still-persistent inflation. Bank of America, Deutsche Bank, and Société Générale have all predicted the S&P 500 to notch a new all-time-record next year.
1. The Fed will probably cut interest rates
Markets are convinced that the Federal Reserve is set to slash interest rates next year, a development that historically has provided a big boost to stock price.
And those bets on lower rates are looking pretty solid as 2023 winds down.
Inflation is solidly on the downtrend, cooling to 3.2% in October. The labor market, too, appears to be loosening up, with fewer job openings reported and fewer new jobs added in the latest private payroll report. Markets are eagerly watching Friday’s non-farm payroll report and next Tuesday’s November inflation reading for further clues.
According to ING Economics, the Fed could end up cutting interest rates six times next year as prices continue to fall. That amounts to around 150 basis-points of rate cuts, ING chief international economist James Knightly predicted.
UBS strategists predicted an even-steeper pace of rate cuts next year, with the Fed slashing rates 275 basis-points as it shifts to “full-on accommodation” mode.
2. The US economy will remain strong
By raising interest rates as high as it has, the Fed has given itself the ammunition it needs to stimulate the economy if and when it begins to slow, but it might not need to do much as the economy is looking resilient heading into 2024.
Wall Street has warmed up to the prospective of a soft-landing, with Goldman Sachs dialing back its recession odds to just 15%.
BMO implied there was a less-than-40% probability of a recession, pegging the odds of a soft-landing at 60%.
“Although our expectation for two or three Fed rate cuts in 2024 is less optimistic that the market’s current assessment, the directionality matters more than pace as long as a soft-landing prevails,” BMO chief economist Yung-Yu Ma said in a note on Wednesday.
Ned Davis Research sees an even higher chance the economy could slow down without tipping into recession, estimating there was a 70% chance of a soft-landing.
“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.
3. AI will boost productivity
Wall Street’s hype for artificial intelligence will finally pay off as generative AI tech will power productivity in the economy. That’s bound to carry stocks higher throughout 2024, BMO’s Ma said.
“The most notable upside risk for the economy and equity markets is that the proliferation of artificial intelligence has potential to drive productivity gains sharply higher in 2024 and beyond,” Ma added. “Resilience, adaptability, and innovation have been hallmarks of the economy in 2023, and we see those factors carrying us through in 2024 as well.”
Artificial intelligence could end up boosting productivity over the next 10 years, Goldman Sachs predicted, estimating a 1.5% boost to US GDP over that time frame. The stock market would be a major beneficiary of this, and could see as much as 14% upside from AI-led productivity gains, strategists predicted in September.
