The stock market surprised Wall Street last year with a significant increase, and it could surpass that this year with an even larger surge.
Supported by a strong U.S. economy that defied widespread recession predictions and a more dovish stance from the Federal Reserve last fall, the S&P 500 rose by 24% in 2023.
Only a few Wall Street analysts expected such a rally, leading to doubts about the possibility of another substantial leap in 2024. JPMorgan even predicted a sharp drop in the S&P 500 this year. Meanwhile, Morgan Stanley anticipated a more average year with single-digit returns, not a repeat of double-digit gains.
Fast forward to today, and the S&P 500 has already increased by 23% so far in 2024, nearly matching last year’s growth. This is despite the Fed starting its rate-cutting cycle later than expected and with fewer cuts projected for the year.
Instead of being driven by Fed rate cuts, the stock market rally has been fueled by other factors such as the continued strength of the economy, solid corporate earnings, and the ongoing AI boom.
In recent weeks, Wall Street has become more open to the idea of another significant gain. Earlier this month, Goldman Sachs’ chief U.S. equity strategist David Kostin stated that the S&P 500 would reach 6,000 by the end of the year and 6,300 a year from now. This was an increase from Goldman’s previous forecasts of 5,600 by year-end and 6,000 over the next 12 months.
If the broad stock market index achieves this target, it would represent a 26% increase for the year.
Jay Hatfield, CEO at Infrastructure Capital Advisors, has been predicting for months that the S&P 500 would close the year at 6,000. This assumption is based on the likelihood of a divided government resulting from the U.S. election, which is expected to lead to stable regulatory policies and lower government spending, as reiterated in a recent note.
On Friday, Sandra Cho, founder and president of Pointwealth Capital Management, told CNBC that she expects the S&P 500 to end the year around 6,000.
“We’re in the soft-landing camp,” she said. “We definitely feel like the Fed has done a pretty good job. There’s been a couple of hiccups, but [it] has done a pretty good job as far as factoring in inflation and managing what’s going on, especially with the geopolitical events happening.”
However, not everyone is convinced that the good times will continue. Nassim Nicholas Taleb, author of the book The Black Swan about unpredictable events, mentioned that the current environment resembles what existed during previous collapses, pointing to market complacency and the earlier era of low rates that discouraged conservative investments.
Now, valuations are “crazy” and based on a lot of hope, while the economy appears “very confusing” as recent data have been sending mixed signals, as he told Bloomberg TV last Friday.
Similarly, his colleague Spitznagel recently warned that the uninversion of the yield curve after years of being inverted is the initial signal for significant reversals in the future as a recession approaches.
“That’s when you enter black swan territory,” he told Bloomberg TV last month. “Black swans always lurk, but now we’re in their territory.”