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After an outstanding 2023 for stocks, many market analysts see a more measured advance in 2024, according to Bankrate’s Fourth-Quarter Market Mavens Survey. They predict the Standard & Poor’s 500 stock index will rise about 5.5 percent over the coming four quarters.
These analysts forecast that the S&P 500 will rise from 4,622.44 at the end of the forecast period to an average of 4,878. It’s the 13th straight time that the survey projected gains in the coming four quarters. The experts also continued to prefer U.S. stocks to their global rivals but this time they preferred growth stocks over value stocks, unlike in the third quarter survey.
“The year 2024 brings with it no shortage of potentially challenging factors that will be associated with the nagging ‘wall of worry,’ including whether interest rates and yields match hopes, geopolitical risk and, lest we forget, the U.S. election,” says Mark Hamrick, Bankrate’s senior economic analyst.
“A recent Bankrate survey found that nearly 9 in 10 Americans said the handling of the economy will be a key decision-making factor in casting their ballot for president,” he says.
Here are the key points from the Bankrate survey.
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s Fourth-Quarter 2023 Market Mavens survey:
- Survey: Stocks to march 5.5% higher in 2024, say pros
- Survey: Investment experts see 10-year Treasury yield falling over the next year
- Survey: Here’s how experts see Fed policy hitting stocks in 2024
Stocks ready to climb in 2024, according to experts
After a strong first half but a lackluster third quarter, stocks rallied furiously in the fourth quarter, capping a strong run for the year. With the S&P 500 approaching its levels of a couple years ago – just as the Federal Reserve was preparing to hike interest rates – market analysts are expecting stocks to continue their winning ways in 2024, albeit at a more moderate pace.
The survey’s respondents project the index to climb about 5.5 percent in the coming four quarters, somewhat below the market’s average annual return of around 10 percent. On average, analysts expected the S&P 500 to climb to 4,878 – up from 4,622.44 at the end of the survey period on Dec. 11. Only one analyst expected a fall in 2024, and only a modest one.
Other reasons to be more tempered in their expectations for future gains: many analysts are still divided on whether the U.S. will suffer a recession, and some point to high stock valuations.
Experts remain balanced on five-year outlook
Following the market’s run-up in 2023, experts in the Bankrate survey became more tempered on how the market would fare in the next five years, relative to its historical performance.
- 42 percent said returns over the next five years will be lower than long-term returns.
- 25 percent of respondents said returns will be about the same as their historical average.
- 25 percent said returns will be above the historical average.
- One analyst offered no comment.
That change was a significant shift from the third-quarter results, as shown below. Some analysts pointed to high valuations, the emergence of AI as a productivity booster and interest rates as reasons for their position.
“Given the starting point of slightly rich valuations, with expectations for a recession next year, means the upcoming five-year period will see lower-than-normal returns,” says Sameer Samana, senior global market strategist, Wells Fargo Investment Institute.
Sam Stovall, chief investment strategist, CFRA Research, also expects below-historical returns, pointing to the potential for higher interest rates. “Equity price averages will likely be pressured by the start of a secular bull market in 10-year yields,” he says.
In contrast, Dec Mullarkey, managing director, SLC Management, expects above-average returns. “Productivity is picking up in the U.S. and breakthroughs in AI and technology should continue to spur this,” he says. “Also government commitments like the Inflation Reduction Act should attract other capital and help establish the U.S. as a leader in sustainable investing and solutions.”
While Patrick J. O’Hare, chief market analyst, Briefing.com, didn’t provide an estimate of five-year returns, he did say: “The stock market, over time, has been a great wealth-generating machine for investors willing and able to ride out the inherent volatility – both good and bad – associated with equity investing.”
Experts still favor U.S. stocks over global stocks
U.S. equities were once again the favorite of the survey’s respondents in the coming year, compared to global equities.
- 50 percent of respondents favor U.S. stocks in the coming year.
- 17 percent prefer international stocks.
- 33 percent said the returns between the two would be about the same.
This quarter’s survey marked a significant shift in those who favored global stocks and those who thought returns of the two groups would be similar in the year ahead. In contrast, in the third-quarter survey, 60 percent of analysts favored U.S. stocks, while 27 percent tipped international stocks to outperform and just 13 percent said the returns would be the same.
Experts cited many different reasons for their expectations, including inflation and other macro concerns.
“We are far ahead of the other regions in COVID recovery, now including lower inflation,” says Kim Forrest, chief investment officer/founder, Bokeh Capital Partners, who prefers U.S. stocks.
“We think the sector composition in the U.S. – more tilted towards growth sectors – will allow it to outperform during the moderate recession that is part of our basecase,” says Samana. “Equities outside the U.S. tend to be more cyclical and export-oriented, both factors that will struggle in a recessionary environment.”
“The lag effect of prior rate hikes from the Fed and other central banks should act as more of a headwind to global growth in 2024,” says O’Hare. “Presidential election year promises, eventual rate cuts by the Fed, and easing inflation, however, should help the U.S. stand out as the better alternative in a more challenging growth environment.”
Others pointed to higher valuations on American stocks in support of their position.
“The U.S. superior economic growth and business vitality is offset by significantly higher valuations for U.S. stocks,” says Michael K. Farr, president and CEO, Farr, Miller & Washington, He believes the returns from American and international stocks will be similar in the year ahead.
“Global stocks trade at a steep discount to its relative P/E average (vs the S&P 500) and should benefit from a projected easing in the value of the U.S. dollar in the year ahead,” says Stovall.
Growth stocks are the ones to own, say analysts
After favoring value stocks in the third quarter, analysts picked growth stocks to outperform in the fourth quarter survey. Here’s how the results break down:
- 25 percent of respondents prefer value stocks to growth stocks over the next year.
- 50 percent favor growth stocks to outperform value.
- 25 percent think returns will be about the same.
It was a significant drop for value stocks, which had been favored by 60 percent of respondents in the prior survey. And it’s a return to form for growth stocks, which had been favored in the first- and second-quarter surveys as well.
“Value only works if it can generate growth – so why buy there? Investors are always rewarded for owning growing assets,” says Forrest.
“With inflation normalizing and rate cuts expected next year, both growth and value should perform well,” says Mullarkey. “However, growth stocks tend to outperform when economic growth perks up or recession fears abate. As inflation has cooled, the odds of a soft landing have increased. And as rate cuts materialize, the earnings prospects and dynamics for growth stocks should accelerate quicker.”
Other market analysts see the potential for value to do satisfactorily in the year ahead.
“Value has underperformed dramatically for a long time as the FANG stocks have driven performance,” says Farr, who believes value stocks will outpace growth stocks in the coming year. “We expect performance to broaden if the U.S. does indeed avoid a recession.”
“We could easily see a year where growth outperforms in the first half, as a recession takes place, and value outperforms in the second half, as a recovery takes shape,” says Samana, who believes returns will be similar for growth and value stocks.
Bankrate’s fourth-quarter 2023 survey of stock market professionals was conducted from Dec. 1-11 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Kenneth Chavis IV, CFP, senior wealth counselor, Versant Capital Management; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Patrick J. O’Hare, chief market analyst, Briefing.com; Dec Mullarkey, managing director, SLC Management; Kenneth Tower, CEO, chief investment strategist, Quantitative Analysis Service; Clark A. Kendall, CFA, president, Kendall Capital; Sonu Varghese, Ph.D., global macro strategist, Carson Group; Michael K. Farr, president and CEO, Farr, Miller & Washington; Brad McMillan, chief investment officer, Commonwealth Financial Network; Sam Stovall, chief investment strategist, CFRA Research; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Chuck Carlson, CFA, CEO, Horizon Investment Services.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.