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  • Writer's pictureThe San Juan Daily Star

S&P 500 to See Small Gain in 2024 as US Economic Risks Rise

The S&P 500 will end next year only about 3% higher than its current level, with a possible U.S. economic slowdown or recession among the biggest risks for the market in 2024, according to strategists in a Reuters poll released Tuesday.

The benchmark index will finish next year at 4,700, according to the median forecast of 33 strategists polled by Reuters during the last week and a half. That is 3.4% higher than Monday’s close of 4,547.38.

Nine of 13 strategists who also answered a question on whether U.S. stocks will hit a record high in the coming six months said yes, and most of them said they expect it to happen in the early part of 2024.

Wall Street stocks have rallied strongly in recent weeks, boosted by the view the Federal Reserve is done hiking interest rates and may begin to cut them at some point next year.

Investors cheered benign October inflation data last week as Americans paid less for gasoline. The S&P 500 is up about 18% for 2023 to date.

The Fed earlier in November held rates steady, but, since 2022, the U.S. central bank has hiked its policy rate 525 basis points in an effort to curb inflation.

Worries persist the economy could fall into a recession next year or at least slow.

“We see the economy weakening further into 2024, and, at some point the consumer will break,” said Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute.

But, he said the firm thinks the U.S. economy could quickly switch to recovery mode in the second half of the year. WFII sees the S&P 500 ending next year between 4,600 and 4,800.

A cocktail of renewed AI excitement, Nvidia’s imminent earnings update, an impressive 20-year Treasury auction and a leveling off of crude oil prices has invigorated the holiday week.

Intrigue and speculation over this year’s artificial intelligence craze has gone up several gears since Friday’s ouster of Sam Altman as boss of ChatGPT-developer OpenAI and his subsequent defection to the firm’s biggest sponsor Microsoft - fueling talk Big Tech will hoover up all the talent in the area.

Markets are anticipating inflation will decelerate and are currently pricing in a greater than 50% chance of a rate cut of at least 25 basis points by May, according to CME’s FedWatch Tool on Monday.

Still, Goldman Sachs’s economic team wrote in a recent note the Fed will hold off cutting rates until the fourth quarter of next year, with stronger-than-expected economic growth helping to forestall a recession.

Geopolitical problems are among other risks to the market heading into 2024, strategists said, with investors closely watching the war between Israel and Hamas militants in Gaza.

Ten of the 13 strategists who responded to a question on the U.S. corporate profit outlook said they expect earnings to grow in the next six months.

Overall S&P 500 earnings growth for 2023 is estimated at 2.3% after a weak first half of the year, according to LSEG data.

Analysts expect earnings to rise 11.2% in 2024 over the previous year.

But valuations have risen with recent market gains. The S&P 500 index’s forward 12-month price-to-earnings ratio is now at 19.1, up from 17 at the end of 2022 and its long-term average of about 16, based on LSEG data.

For some strategists, technology, which is up 52% for the year so far and S&P 500’s best-performing sector, is still a favorite going into 2024.

“The technology revolution continues,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

Based on the poll, the Dow Jones industrial average will finish next year at 38,000, up about 8% from Monday’s close. The Dow is up 6% so far in 2023.

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