The stock market is projecting new heights for 2024.
Strategists from BMO Capital Markets and Deutsche Bank have high expectations for the S&P 500 (^GSPC), predicting the index will reach 5,100 by the end of next year. This stands as the highest projection yet among Wall Street strategists followed by Yahoo Finance.
If this prediction holds true, it would signify a new all-time high for the S&P 500, which hit 4,796 in January 2022.
“We believe 2024 will be Year 2 of at least a 3-5 year process that will see US stocks exhibit more normal and typical performance, paced by a backdrop of normal and typical GDP and earnings growth, valuation, and bond yield ranges,” BMO chief investment strategist Brian Belski wrote.
Belski’s research indicates that the S&P 500 typically returns about 11% in the second year of a bull market, aligning with his 5,100 projection for 2024.
Both Deutsche Bank and BMO expect the S&P 500 to deliver earnings per share of $250 in the year ahead, marking the highest projections on Wall Street so far. This increased projection for earnings causes both calls for the S&P 500 to exceed the 5,000 predictions Bank of America and RBC released recently.
These four firms are confident that earnings growth will allow the S&P 500 to continue to trade at a higher valuation than its historical standard.
“If earnings growth continues to recover as we forecast, valuations will remain well supported around the top of the range as is typical on the pricing in of a pickup in earnings growth,” Deutsche Bank’s team of analysts wrote in a note on Monday.
Both BMO and Deutsche Bank anticipate that stocks will weather a recession in the first half of 2024. Belski at BMO sees the predicted downturn as a “chicken little recession,” expressing confidence in the US economy’s strength, suggesting it would only be a “recession in name only.”
Deutsche Bank’s team is more assertive in predicting a recession in the first half of 2024, with economic growth falling below trend. However, they do not foresee a significant stock market downturn.
From a sector standpoint, Belski recommends that investors diversify their portfolios in 2024, suggesting a “sharp contrast” from the 2023 rally led by the “Magnificent Seven”.
“We believe active investment strategies will be even more important next year as many of the largest stocks that drove performance within sectors are unlikely to maintain that momentum in 2024, forcing investors to search for other opportunities further down the market cap spectrum,” Belski wrote.
Josh Schafer is a reporter for Yahoo Finance.
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