To The Moon

Although the start of 2024 US stock market is not optimistic, the situation seems to have changed last week. The $DJIA(.DJI)$ has currently risen by 0.46%, the $S&P 500(.SPX)$ has risen by 1.47%, and the $NASDAQ(.IXIC)$ has risen by 2.00%.

Obviously, the profits accumulated last year have objectively led to a demand for stopping the appreciation, and the selling of profits at the beginning of the year seems to have come to an end, and a new rise is beginning.

There is a good chance that the U.S. stock market will continue to surge in 2024, and here are five reasons to support it.

Disclaimer: Investment decisions carry risks. Consult with a financial advisor before making any investment choices. Past performance is not indicative of future results.

1. Stats say it all

Last Friday, after a 24-month “bumpy ride”, the $S&P 500(.SPX)$ finally hit a new all-time high. The stats are in: when the index takes more than a year to hit a new high, it has gone up 13 out of 14 times in the next year, with an average gain of nearly 15%.

And remember that November surge (+8.91%)? History shows that when the $S&P 500(.SPX)$ jumps more than 8% in a month (which has happened 30 times since 1950), it's gone up 90% of the time in the next year, with an average gain of 15.8%.

2.Bull market all around

America's major stock indexes are all in bull markets. A study of the 10 biggest bear markets in the $DJIA(.DJI)$ since 1900 showed that the average gain in the year after a bear market is 44.7%, and by the third year, it's 66.3%.

After the housing and financial crisis of 2007-2009 (the Great Recession), the Dow Jones gained 63.4% in the first year, 100.6% in the third year, and 153.6% in the fifth year. Right now, the Dow is only in its 14th month of a bull market, while the Nasdaq and S&P 500 are only in their eighth and seventh months, respectively.

3.Inflation's peak has passed

The recent Consumer Price Index (CPI) and Producer Price Index (PPI) reports confirmed that inflation is on a downward trend.

Based on this, Fed Chairman Powell said there's no chance of rate hikes anymore, and he expects three rate cuts this year, followed by three cuts in 2024, four in 2025, and three in 2026.

Many people predict the Fed will cut rates four or five times (100 to 125 basis points) this year, with the first cut as early as March. As we all know, lower interest rates are great for stocks.

4.The prospects for economic growth

At the same time, the Fed also raised its economic growth forecasts. The US GDP growth forecast for 2023 has been raised from 1.0% and 2.1% to now 2.6%.

Additionally, the economy is expected to grow in 2024 and 2025 too. Personal income is at a historically high level, consumer spending is still strong, and the job market is very tight. The talk of a recession lacks data support.

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5.Stocks are undervalued

The P/E ratio of the $S&P 500(.SPX)$ might have recovered from its lows, but it's still far below its peak in 2021 and below where it was when the index was at the same level last time.

S&P 500 is not as expensive as it appears - Citi | Seeking Alpha

Meanwhile, earnings expectations for listed companies are stable, and many are growing. Earnings expectations for the $S&P 500(.SPX)$ suggest that first-quarter earnings will likely grow by 4.6% and sales by 3.8% in Q1 of 2024.

Earnings and sales are expected to grow by 10.1% and 4.8% respectively in Q2, and by 7.6% and 5.1% respectively in Q3. The core logic of stock market growth is earnings growth, and as earnings grow, so will stocks.