There are thousands of stock analysts, economists, and companies with conflicting – and often sensationalized – predictions for the stock market in 2024. So, how do you decide who to believe?
Start with our stock market outlook, which includes a summary of top analyst opinions, mixed with our own interpretation. Then, be sure to discuss your portfolio with an experienced financial advisor to learn how changes in the stock market could affect you.
Economic Contraction Could Dampen Stock Performance
Most analysts conclude that the Fed will do the improbable this year – achieve a soft landing. That means that they will successfully guide the economy out of a high-interest-rate, high-inflation period without a major recession. The exact economic outlook varies depending on whose analysis you read, but there are a few notable commonalities.
Spending and GDP Are Expected to Slow, Dampening Business Revenue
Consumer spending and Gross Domestic Product [GDP] are expected to fall in mid-2024. The Conference Board predicts that both spending and GDP will contract in the 2nd and 3rd quarters. On the other hand, J.P. Morgan has a more positive outlook – projecting a slowdown in spending and GDP, but not a contraction. The Fed also predicts slower economic growth this year, but expects GDP to be positive for 2024 as a whole.
Lower GDP is, in part, a byproduct of lower consumer spending. In turn, slower consumer spending tends to lead to lower revenue for businesses – and lower stock prices.
Labor Market Expected to Weaken Slightly While Labor Costs to Remain High
Analysts predict that unemployment will rise with a slower economy. Specifically, Fed analysts project that unemployment will rise to 4.1% by the end of the year, while those at the Conference Board and J.P. Morgan forecast it will reach 4.3% and 4.4%, respectively.
While many analysts predict more unemployment than we are currently experiencing, it is unlikely that the labor market will weaken enough to have a significant impact on wages. In fact, Willis Towers Watson [WTW] predicts that wages will rise another 4.0% this year. Continued wage growth of this nature could keep labor costs elevated for businesses and weigh on stock growth.
Continued Inflation Expected to Keep Business Costs High
Inflation is expected to decline throughout the year, but most analysts believe it will remain above the Fed’s 2% target. Rising costs could continue to put pressure on business expenses and hinder profitability in some sectors.
Anticipated Interest Rate Cuts Could Spur Business Expansion
Along with moderating inflation, the Fed is expected to begin reducing interest rates in 2024 – most likely in the 2nd quarter. The depth of rate cuts remains uncertain, but Fed Funds futures traders anticipate a total of 5 to 6 cuts this year.
Our Chief Financial Strategist, Clint Kirby, believes analyst forecasts for rate cuts are too aggressive. He expects the Fed to reduce rates, but not so drastically – unless there is significant unrest in the economy.
Unlike the other economic signals that we have discussed, lower interest rates tend to spur business expansion and result in higher stock prices. Rate cuts also have a significant impact on bond markets.
Our projections show that rate cuts will cause the yield curve to “un-invert” this year – meaning that long-term bonds will once again have higher yields than short-term bonds. The return to normal in the bond market could have a positive effect on financial stocks.
Overall, inflation, high wages, and expectations for slower consumer spending present headwinds for stocks in the first half of the year. On the other hand, lower interest rates and the expected economic recovery in the second half of the year could outweigh these concerns and spur business expansion.
Corporate Earnings Expected to Rise Despite Economic Concerns
Despite the risks of a slowing economy, we predict a strong year for stocks. Many other analysts echo this belief. In fact, FactSet predicts that S&P 500 companies will report earnings growth of 11.8% this year – well above the 10-year average of 8.4%.
FactSet predicts that four sectors will outperform the average in terms of earnings growth – Health Care, Communication Services, Information Technology, and Consumer Discretionary. These sectors are shown in green in the chart below while industries expected to underperform are shown in orange.
Data Source: FactSet
Our Chief Financial Strategist agrees that Health Care is an industry to watch this year. He also favors the Financials sector, in part, because of the yield curve “un-inversion” mentioned previously.
Adjusting Your Portfolio for 2024
As you review expectations for the stock market, keep in mind that it can be unwise to overhaul your portfolio based on any one piece of data or even a consensus of analyst predictions. Instead, your investments should be chosen with your individual goals and financial situation in mind.
For example, if you are saving for retirement in a few decades and have a long-term focus for your investments, making significant changes to your investment lineup could do more harm than good. On the other hand, if you invest in hopes of capturing short-term gains, you may want to make some adjustments based on market forecasts.
Whether your goals are long or short term, it makes since to discuss your portfolio with an experienced financial advisor. An advisor who specializes in stock trading can analyze your current holdings and recommend adjustments based on fundamental analysis and technical analysis principles.
Prepare for 2024 With Your Investing Gameplan™
At DreamWork Financial Group, we specialize in equities and ETF investments, and we combine that knowledge with a unique wealth management platform – Investing Gameplan™. This innovative financial planning system includes a personalized portfolio of stocks and ETFs – built by our advisors, based on your individual goals, and updated as market conditions dictate.
With DreamWork, your advisor is your portfolio manager – meaning you have a direct line to the person making your investing decisions. Additionally, you can rest assured that the choices we make are in your best interest because our advisors are fiduciaries.
To learn more about DreamWork and get started with Investing Gameplan™, contact us today.