2023 was a positive year for the stock market, with both the NASDAQ Composite and the NASDAQ 100 witnessing remarkable gains of 33% and 40% in the first half of the year. The US and other economies, such as the UK, saw a bullish market return in 2023, with the primary stock market index in the UK (GB100) seeing a rise of 36 points or 0.49% since the commencement of 2023.
As we approach 2024, economic and stock market forecasts suggest a dynamic landscape. This article will discuss the top stock market and economic predictions ahead of us.
Top stock market predictions in 2024
S&P 500 to remain bull and reach new all-time highs
Financial analysts foresee a resurgence of the bull market for the S&P 500 throughout 2024, with expectations set on reaching new record levels. The optimistic outlook is rooted in historical data, indicating that any yearly decline exceeding 18.11% for the S&P 500, as witnessed in 2022, has historically been succeeded by two consecutive years of market gains.
In June 2023, the S&P 500 entered bull market terrain, surging over 20% from its October 2022 lows. As per Forbes, on average, S&P 500 bull markets have endured for over five years since World War II. Analysts also underscore the potential for a robust 2024, highlighting the historical trend of a 12.9% average gain in the second year of a bull market.
US presidential elections could impact growth stock valuations
The forthcoming 2024 US presidential election introduces an element of uncertainty into the stock market, particularly to the perceived unpopularity of leading candidates among American voters. Analysts express concerns that this electoral landscape could contribute to volatility in the stock market, especially for the US stocks. Furthermore, the persisting challenge of sticky inflation may compel the Federal Reserve to prolong high interest rates, potentially exerting negative pressure on the valuations of growth stocks.
Fed's monetary policy to induce rate cuts
As of 2023, the Federal Reserve has made significant strides in curbing inflation, though challenges persist in attaining the targeted 2% rate. Projections from the Federal Open Market Committee (FOMC) indicate a core Personal Consumption Expenditures (PCE) inflation of 2.6% and GDP growth of 1.5% in 2024.
Despite this, there is speculation among investors that the Federal Reserve might transition from potential interest rate hikes in 2023 to rate cuts by mid-2024. Market sentiment, reflected in CME Group data, indicates a more than 60% probability of a rate cut by June 2024, which could increase stock price valuations due to the inverse relationship between the two. The outlook underscores the Fed's delicate balancing act in responding to rising housing and energy prices (and subsequent rises in their stock prices) while managing inflation.
Bloated valuations of Big Tech to limit additional upside for the NASDAQ
Observers in the financial market express caution regarding the bloated valuations of major technology companies, potentially acting as a limiting factor for additional gains in the NASDAQ.
Despite the market rebound in 2023, experts have had lingering apprehensions regarding the sustainability of these valuations. Investors are advised to exercise prudence and avoid the allure of momentum trading in Big Tech. In 2024, there are chances of a reversal trend/market correction.
The real estate and consumer sector might outperform others
According to their average estimates, market analysts predict that the real estate sector will hold the greatest potential for upside over the next 12 months, with a projected growth rate of 25.3%. Additionally, the consumer discretionary sector is anticipated to achieve a significant upside of 24.8%. With favorable growth outlooks, these sectors represent promising investment opportunities in 2024 for the stock market, demonstrating potential resilience in the face of broader economic challenges.
Energy sector to gain the lowest upside
The energy sector is expected to experience the lowest upside, with a modest growth estimate of just 7.3%. Despite this, analysts emphasize that a lower expected upside does not necessarily imply bearish sentiments toward energy stocks as long-term investments. Notably, the energy sector holds the highest percentage of "purchase" ratings from analysts, indicating a nuanced perspective on its potential performance in 2024.
Top economic predictions in 2024
Global growth to remain low as per IMF
According to the IMF, the world's economic growth is expected to slow down. This could potentially be a warning sign for countries around the globe, including the US and Canada. It is expected that Canada's main stock index might not grow as much as initially thought in the next year. This is because a sluggish global economy affects how well companies can make money. The IMF predicts that the world's growth will be 2.9% in 2024, down from 3.0% in 2023.
The IMF suggests the Canadian economy might even go into recession in the first part of 2024 due to a slowdown in the American economy, one of Canada's strongest trade partners. Analysts believed that the Canadian stock market, represented by the S&P/TSX Composite Index, would go up by around 3.7% by the end of 2024, as it is already down 1.3%. But this is a bit less optimistic than their earlier prediction of a 21,800 index level in August.
Now, they are looking at reaching 21,000 by the end of 2024. This global economic story has a ripple effect on how people invest and what happens in the stock market. For example, in Toronto, the stock market has gone up by about 3% in 2023. The major roadblocks are less focus on technology stocks and some declines in banking and mining areas.
US GDP growth rate to remain low and inflation high
The Fed's projections of a modest 1.5% GDP growth in 2024 have set the stage for a nuanced economic journey, marked by the persistent specter of inflation and the lingering impact of tight monetary policies on the stock market. Investors are cautiously optimistic, hoping for a soft landing for the US economy and steering clear of a severe recession. Yet, challenges persist, with inflation stubbornly staying above the Fed's 2% target.
The GDP growth trajectory, though positive, is not without its challenges. The first two quarters of 2023 saw 2.2% and 2.1% growth rates, respectively. The Fed envisions a continuation of this pace, forecasting a full-year GDP growth of 2.4% in 2024. However, as discussed above, the outlook dims slightly for 2024, with a projected slowdown to 1.5%.
However, The Conference Board paints a less optimistic picture, projecting a meager GDP growth of only 0.8% in 2024 and a forecast of a shallow recession in the first half of the year. The New York Fed's recession probability model places the odds at 56.12% for a US recession by September 2024. Factors such as slowing wage growth, declining pandemic savings, and escalating household debt contribute to this cautious outlook.
As far as the persistent inflation is concerned, looking ahead to 2024, the Fed projects further improvement, aiming for an average of 2.5%, with a subsequent dip to 2.3% in 2025. According to CME Group, there is a more than 25% chance of the Fed cutting interest rates below the current level of 5.33% by May 2024.
China's real estate crisis could intensify
China is facing a tough situation with its real estate since 2021, and the challenges only seem to intensify in 2024. This can negatively impact the Chinese economy. The World Bank forecasts the nation's GDP to be only around 4.4% in 2024. Even the IMF has predicted China’s growth to be only 3.5% in 2024 from 5% in 2023. This could negatively impact the Chinese stock market and the global economy, as China's large construction and real estate sector will witness a decline in prices due to the decline in demand.
If the prices of houses continue to drop too fast, it's not just a problem for people buying homes. It could also cause big problems for banks and families. Trying to keep house prices high might help families and banks for a little while, but it could stop other important things like new buildings and hurt local governments' money from selling land.
It is also expected that financial firms in China will provide a one-year loan extension to builders in China in 2024, which might have mixed impacts on the economy and the stock market. On the one hand, it will offer immediate financial relief to builders, preventing defaults and contributing to stability in the real estate sector, which is crucial for economic growth.
However, it might challenge financial firms, impacting their profitability, share prices, and balance sheets. The overall effect on investor confidence and stock market performance will depend on perceptions of whether the extension is a proactive measure to support the real estate sector or a source of increased financial risk. The move is also expected to influence a decrease in interest rates, prompt regulatory responses, and shape housing market dynamics, making it a multifaceted development with varying implications.
Japan could face increased fiscal inflation
The Bank of Japan is anticipated to boost its consumer price index (CPI) outlook for fiscal 2024, potentially reaching the 2% growth range in its upcoming policy-setting board meeting, edging closer to the goal of consistent and sustainable price increases. The current projection for the fiscal 2024 CPI rate, standing at 1.9%, is expected to be discussed during the monetary policy meeting in December 2023, with the results included in the Outlook for Economic Activity and Prices report scheduled for release later that month.
2023 October's CPI data revealed a 2.7% rise in the Tokyo wards area, marking the first increase in the growth rate in four months. Efforts by companies to pass on increased costs have kept prices elevated beyond the BOJ's expectations, which will be passed on in 2024.
The upcoming outlook report in 2024 is expected to reflect the government's economic measures. Prime Minister Fumio Kishida plans to extend subsidies for electricity, residential gas, and gasoline until the spring of next year. This extension may slow the momentum for price increases in the current fiscal year but could potentially contribute to heightened inflation in fiscal 2024.
UK's real disposable income to get a boost
In 2024, real disposable income in the UK is projected to experience a noteworthy increase of approximately 2.5%. This boost is attributed to a decline in headline inflation and sustained wage growth, with the adverse effects of the Bank of England's rate hikes peaking and gradually diminishing throughout the year, as suggested by Goldman Sachs.
Goldman Sachs Research also predicts a modest pickup in growth, with GDP growth estimates of 0.1% in the first quarter, 0.2% in the second and third quarters, and 0.3% in the final three months of 2024. The overall projection for the UK economy is a 0.6% expansion next year, surpassing the Bank of England's forecast and the consensus estimate of zero projected growth.
Underlying inflation metrics have also demonstrated a significant cooling trend, driven by declining core goods inflation and diminishing service pressures. IMF Research anticipates continued disinflation, with year-over-year headline and core inflation rates forecasted to be 2.8% at the end of 2024.
Finally, the structural unemployment rate is estimated to be around 4.4%-5%, making the UK's growth-inflation tradeoff less favorable than other developed markets.
Monitor these predictions for informed trading decisions
Monitoring these 2024 economic and stock market predictions can serve as a compass for informed trading decisions. As the landscape evolves, staying attuned to indicators, inflation trends, and central bank policies provides a strategic advantage. In this dynamic environment, informed investors can proactively adjust their portfolios, optimizing opportunities and mitigating risks accordingly.
*Past performance is not a reliable indicator of future performance.
