The stock market surprised Wall Street last year with massive gains, and could possibly top those gains this year with an even bigger surge.
Helped by a US economy that remains strong despite predictions of a widespread recession as well as a dovish change in tone from the Federal Reserve last fall, the S&P 500 jumped 24% in 2023.
Only a handful of Wall Street analysts expected a rally of that magnitude, raising skepticism that another big jump is possible in 2024. In fact, JPMorgan expects the S&P 500 to fall sharply this year. Meanwhile, Morgan Stanley expects an average year to produce single-digit profits, rather than a repeat of double-digit gains.
Now, the S&P 500 has risen 23% in 2024, almost matching last year’s increase. This happened even though the Fed started its rate cut cycle later than expected and with the anticipation of fewer rate cuts this year.
Rather than being triggered by the Fed’s rate cut, the stock market rally actually had another catalyst: the economy continues to outperform expectations as the economy is strong, corporate earnings are strong, and the AI boom is still having an impact.
In recent weeks, Wall Street has been bracing for the idea of another big rally. Earlier this month, the chief US equity strategist at Goldman Sachs, David Kostin, said the S&P 500 would hit 6,000 by the end of this year and 6,300 next year. This figure is up from Goldman’s previous prediction that the S&P 500 would reach 5,600 by the end of the year and 6,000 in the next 12 months.
If the stock market index reaches this target, there will be an increase of 26% this year.
Jay Hatfield, CEO at Infrastructure Capital Advisors, has been saying for months that the S&P 500 will end the year at 6,000. This assumes the US election results in divided government, which would likely result in stable regulatory policies and lower government spending, he stressed in a recent note.
And on Friday, Sandra Cho, founder and president of Pointwealth Capital Management, told CNBC that she sees the S&P 500 ending the year around 6,000.
“We are in the soft-landing camp,” he said. “We feel the Fed has done a pretty good job. There are some glitches, however [it] has done a pretty good job of factoring in inflation and managing what happens, especially with geopolitical events happening.”
Of course, not everyone is convinced that the good times will continue to roll. Nassim Nicholas Taleb, who wrote the bookBlack Swanregarding the unpredictability of events, it is said that the current situation is similar to what happened in previous crashes, indicating a sense of complacency in the markets and an era of low interest rates that taught the public to avoid conservative investments.
Right now, valuations are “crazy” and built on a lot of expectations, while the economy looks “very confusing” as data gives mixed signals lately, he told Bloomberg TV last Friday.
Likewise, his colleague Spitznagel recently warned that the absence of a yield curve reversal after years of inversions is an opening signal for a major reversal as a recession approaches.
“That’s when you get into black swan territory,” he told Bloomberg TV last month. “Black swans are always lurking, but now we are in their territory.”
