Friday Nov 24 2023 16:28
4 min
The stock market performance’s in 2023 has been stellar, with most indices growing by double digits. Bank of America's equity strategy team anticipates another robust year in 2024, propelling the S&P 500 index to a historic high of 5,000.
In a client note released on Tuesday, Savita Subramanian, BofA Securities head of U.S. equity and quantitative strategy, argued that the upcoming year would be a "stock picker's paradise" as markets transition beyond the "maximum macro uncertainty" faced by investors this year.
The firm wrote:
"The market has absorbed significant geopolitical shocks already and the good news is we're talking about the bad news.
Macro signals are muddled, but idiosyncratic alpha increased this year. We're bullish not because we expect the Fed to cut, but because of what the Fed has accomplished. Companies have adapted (as they are wont to do) to higher rates and inflation. […] U.S. exceptionalism is intact."
The firm's projected year-end target for the S&P 500 suggests a potential 10% increase from current levels. In contrast to the 2023 year-end price target of 4,600 on the S&P 500, Bank of America remains optimistic about the index's growth.
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Despite headwinds, such as a weakening consumer and concerns that the delayed impacts of the Federal Reserve's interest rate hikes could be larger than anticipated, Bank of America foresees earnings growing by 6% in 2024, reaching $235 per share.
Subramanian wrote:
"Companies have cut costs and adapted to the weaker demand environment, and saw earnings growing again in 3Q (+3% YoY). History suggests earnings typically recover stronger than they fall, as downturns usually remove excess capacity, resulting in leaner cost structure and improved margin profiles."
Nevertheless, according to Subramanian's team, the optimal trajectory for stocks involves earnings increasing in tandem with positive GDP growth, aligning with Bank of America's economists' forecast that there will be no recession in the U.S. in 2024.
As noted by Bloomberg, Subramanian shares a consensus with some of the most influential figures on Wall Street, including David Kostin of Goldman Sachs Group. and Manish Kabra of Societe Generale, all anticipating the S&P 500 approaching a record high. Barclays Plc strategists predict stocks to outperform bonds, and even Morgan Stanley’s Michael Wilson, traditionally a bearish figure on Wall Street, has adopted a more optimistic outlook for the benchmark in the coming year.
The S&P 500 has surged by 18% this year, driven by growing confidence that the Federal Reserve is nearing the conclusion of its rate-hiking campaign, while the U.S. economy remains resilient. The outlook for earnings remains robust following the third-quarter reporting season, which indicated the end of the profit recession that emerged during the Covid pandemic. Multiple high-profile firms, such as California-based software company Nvidia, have blown by earnings estimates in recent days.
Subramanian said data indicates that most investors are still broadly pessimistic. In the November 21 note, she wrote:
“Bull markets typically end with high conviction and euphoria — we are far from that.”
The S&P 500 index last closed at 4,556.62 on November 23, and has gained over 10% in the past month.
When considering stock market indices and shares for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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