Investor Pulse: Optimism for 2024 (2024)

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Investor Pulse: Optimism for 2024? ›

Investor optimism continued to soar in the first quarter of 2024. In February, investors anticipated a 6.5% stock return over the next 12 months, and this high level of optimism remained steady at 6.3% in April.

As a whole, analysts are optimistic about the outlook for stock prices in 2024. The consensus analyst price target for the S&P 500 is 5,090, suggesting roughly 8.5% upside from current levels.

Recent signals point to an uptick in economic activity and a firming of inflation persistence, leading Vanguard to increase its outlook for 2024 GDP growth, from 0.3% to 0.7%, and its outlook for year-end core inflation, from 2.6% to 2.8%.

We forecast 10-year yields at 4.25% by mid-year and 3.75% by the end of 2024,” said Jay Barry, Co-Head of U.S. Rates Strategy at J.P. Morgan.

Key Takeaways. The U.S. equity market's rally at the end of 2023 has left stocks overvalued, with little room for error. Analysts' estimates for 2024 corporate earnings may be too optimistic, given a likely tapering in U.S. economic growth. Markets may also be overestimating the number of Fed rate cuts in 2024.

U.S. stock returns: 2023 optimism carries forward

This heightened optimism is on par with the positive outlook in December 2021, when investors anticipated a 6% stock market return for 2022. Investor expectations for stock returns over the long run (defined as the next 10 years) rose slightly to 7.2%.

By the end of 2025, inflation is expected to be back on central bank targets in most major economies. GDP growth in the United States is projected to be 2.6% in 2024, before slowing to 1.8% in 2025 as the economy adapts to high borrowing costs and moderating domestic demand.

As inflation finally seems to be coming under control, and growth is slowing as the global economy feels the full impact of higher interest rates, 2024 could be a compelling year for bonds.

What is the interest rate forecast for 2024 2025? ›

Stronger inflation and growth reaffirm our view of a cautious easing cycle from the Fed. Hence, we now expect just two interest rate cuts in 2024 before four further cuts next year. We see a policy rate of 3.875% by year-end 2025.

The estimates from strategists put the median target for the S&P 500 at 5,200 by the end of 2024, implying a decline of less than 1% from Friday's level, according to MarketWatch calculations. Heading into 2024, the median target was around 5,000 (see table below).

In its latest U.S. Economic Outlook, the Economics Group of Wells Fargo Bank puts the 30-year conventional mortgage rate at 7.05% in the second quarter of 2024, declining to 6.5% by the end of the year. Wells Fargo economists predict that the average rate will dip below 6% in the fourth quarter of 2025.

While there could be a growth slowdown in the first half of 2024, experts believe growth should resume in the second half of the year. Americans faced many financial challenges this year, from persistent inflation to increasingly expensive debt.

According to Luxembourg-based ISABELNET, a firm that has been doing private research on the U.S. stock market since 1998, consensus analyst estimates for the S&P 500 are $242 for 2024 earnings and $278 for 2025.

While there could be a growth slowdown in the first half of 2024, experts believe growth should resume in the second half of the year. Americans faced many financial challenges this year, from persistent inflation to increasingly expensive debt.

Global recovery is steady but slow and differs by region

The baseline forecast is for the world economy to continue growing at 3.2 percent during 2024 and 2025, at the same pace as in 2023.

Hence, we now expect just two interest rate cuts in 2024 before four further cuts next year. We see a policy rate of 3.875% by year-end 2025. The combination of a higher policy rate and further economic resilience prompts us to lift our 2024 year-end 10-year Treasury yield forecast by 20 bp to 4.4%.

Economists agree — 2024 may be a strong year for U.S. stocks. The S&P 500 rose 24% in 2023, according to MarketWatch, and recently crossed the 5,000 mark, according to Barron's. This year, we may see a “stock-pickers paradise,” according to Savita Subramanian, head of equity and quant strategy for Bank of America.