In 2023, the stock market experienced an impressive performance and now, the equity strategy team at Bank of America predicts that 2024 will be an even stronger year. According to the team, they expect the S&P 500 (^GSPC) to reach a record high of 5,000.
Bank of America’s prediction is based on the belief that the coming year will be a “stock picker’s paradise” as markets surpass the “maximum macro uncertainty” faced in the previous year. Furthermore, the firm believes that the market has already absorbed major geopolitical shocks and is now “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,” the firm stated.
The firm’s forecasted year-end target for the S&P 500 suggests a potential rise of 10% from current levels. This positive outlook follows the firm’s year-end price target for 2023 of 4,600 on the S&P 500.
Despite concerns surrounding a weakening consumer and the potential larger-than-expected impact from the Fed’s interest rate hikes, Bank of America remains optimistic, projecting a 6% growth in earnings in 2024 to $235 per share.
In addition to the optimistic earnings outlook, Bank of America also predicts that companies are prepared to excel even if the economy experiences a downturn. The firm is confident that earnings will recover and contribute to overall positive GDP, aligning with the bank’s economists’ call for no recession in 2024.
Bank of America’s positive outlook for stocks resonates with Goldman Sachs’ 2024 outlook, emphasizing the importance of an improving economy and reducing reliance on a dovish Fed driven by economic weakness.
In a market where technology and artificial intelligence trades attract substantial interest, some investors remain bearish on equity markets. However, Bank of America views this contrarian sentiment as a supportive factor for the bull case. The firm also highlights that pension fund allocations to stocks are at 25-year lows, active funds are hugging benchmarks, and Wall Street strategists are coming off multi-year lows in their recommended equity exposure.
“Bull markets typically end with high conviction and euphoria,” Subramanian wrote. “We are far from that.”
Josh Schafer is a reporter for Yahoo Finance.
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