To The Moon

It’s that time of the year and I don’t mean “Christmas”. :-p

Rather it’s that time of the year where Wall Street’s top strategists inform clients where they see the stock market heading in the year ahead.

Typically, the average forecast for the group predicts the $S&P 500(.SPX)$ climbing by about 10%, which is in line with historical averages.

This year, strategists are offering a pretty wide range of views.

Some see weakness. Some see strength.

The targets range from 4,200 to 5,500, implying returns between -8.5% and +19.7% based on Fri, 01 Dec 2023’s closing.

For what it’s worth, the forecasts are not as skewed to the downside as they were in 2022.

Caution !

Before proceeding, please remember to take the predictions with a pinch of salt.

Do not put too much weight into one-year targets.

This is because it is extremely difficult to predict short-term moves in the market with much accuracy.

Few on Wall Street have ever been able to pin-point with accuracy.

The research, analysis, and commentary behind these forecasts can be informative and act as a reference point.

Wall Street’s views for 2024:

(1) US recession?

Economists that stock market forecasters are working with, are split on whether the US economy will go into recession sometime next year, that have implications for revenue among other things.

Those who are expecting continued expansion, anticipate growth to be modest.

Those expecting a recession, bank on any downturn to be brief & shallow.

(2) S&P 500’s 2024 growth.

Despite a lacklustre GDP growth forecasts, most strategists still expect S&P 500 earnings to grow in 2024.

Attributing the expectation:

• Due to consumer spending shifting, back toward goods from services.

• Due to fact that S&P has greater exposure to the goods sector, while US GDP has greater exposure to the services sector.

According to FactSet, analysts are expecting record earnings in 2024.

(3) Efficient operations.

Thanks to improved operating efficiencies, many (not all) strategists expect profit margins to remain elevated.

If true, this could help amplify earnings growth, even with modest revenue growth.

For the longest time, profit margins have been holding up.

(4) Lock-in interest rate.

Most S&P 500 companies have low interest rates on their debts locked in for years.

However, more and more firms will still have to refinance at market rates, which continue to hover at the highest levels in years.

High interest expenses are alway a headwind for earnings growth.

Thanks to refinancing activity when rates were low, the interest large companies are paying remain low.

A dependent “good” news at the horizon — if inflation continues to cool, the Fed will revise the Fed funds rate downwards accordingly, to prevent a recession formation.

(5) US economic conditions handling.

Many strategists have agreed that the worst of the inflation crisis is behind us.

In the event that US economy turns “south” significantly, the Federal Reserve may loosen its financial grip and cut interest rate.

While an economic downturn would be undesirable, it’s comforting to know that the Fed has room to maneuver and stimulate the economy.

(6) US stocks’ valuation.

Based on polls by $Deutsche Bank AG(DB)$, when it comes to US stocks valuations, many strategists are split on whether they are (a) reasonable or (b) a bit rich.

Historically, valuations have signaled very little about short-term market moves.

This means the valuation-debate would linger and not go away anytime soon.

While most strategist agree that valuations are elevated, not all believe that this will prevent prices from going higher.

There is no denying that it was all things “artificial intelligence” that helped pull Nasdaq up from the doldrum into AI-stratosphere.

Although the euphoria has cooled recently, it is argued that excitement for artificial intelligence technologies could continue to spike in 2024, and in the process, pushes the market into an early stage of a bubble.

Current: S&P 500 on 12 Dec 2023:

Looking back : S&P 500 2023 predictions.

• Deutsche Bank came closest to current S&P 500 index of 4,643.7 (as of 12 Dec 2023).

• Barclays’s forecast of 3,675 is the furthest from current S&P 500 readings.

Looking forward: S&P 500 2024 predictions:

• $JPMorgan Chase(JPM)$ has the weakest prediction for S&P 500 in 2024, coming in at 4,200.

• Capital Economics gave the strongest prediction for S&P 500 in 2024, coming in at 5,500.

With 60% of Wall Street predicting a buoyant S&P 500 index in 2024, (see above) it is just about the right time to start doing homework on what stocks to monitor from now onwards.

Apart from the Magnificent 7, there are other stocks out there that are value-for-money. (see below)

• Above Yahoo Finance chart that has tracked month-by-month inflation in 28 categories that cover most things people spend their money on.

• At the peak in 2022, every category except electronics, showed positive inflation,

• Perched on top is rental inflation has risen by 6.9%.

• At the bottom is airfare with a contraction of -12.1%.

• With the latest Consumer Price Index (CPI) report for November 2023 out on 12 Dec 2023,

• Falling prices could be found in 10 categories. Food inflation has dropped to 1.7%.

• Inflation rate for all goods combined, which hit 13.2% in 2022, is now 0%.

• Gasoline, unofficial arbiter of the national mood, is -8.9% cheaper than a year ago.

What to invest?

Below are 3 sectors that I think is worth investing.

(1) Energy - $Occidental(OXY)$ .

(2) Heathcare - $UnitedHealth(UNH)$ .

(3) Consumer (food) - $Shake Shack(SHAK)$

• Do you think 2024 S&P 500 will be higher than current level of 4,561.61?

• Do you think 2024 S&P 500 will be lower than current level of 4,561.61?

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