Stock Market Forecast

The year ahead is full of promise, but that path to prosperity is being suppressed by the US Fed. Almost everyone is on board with a rosy stock market outlook, but concerns remain.

In fact, the FED is uncertain itself about the forecast which makes investors nervous. However, it looks like inflation has been beaten, but likely will not retreat to a 2% level. The fact stimulus funding and massive savings in money markets exist, investors know there is a solid floor for the markets in 2024.

The markets are sending plenty of mixed signals and investors are uncertain of which stocks they want to invest in. The Santa Claus Rally happened then faded.  Yet just today, the S&P hit its all-time high.

Why the investor optimism?

  • inflation continues to lower
  • FED rate cut expected
  • US GDP slowing thus inflation may be past
  • $8 Trillion in money markets could move to equities as interest rates fall
  • materials prices on a downward trend (natural gas, oil, lumber)
  • the stock price trend from the fall season is obvious
  • many feel some stocks are at a buy-the-dip moment
  • innovation and investment in AI contributing to a rebuilding of the economy
  • investor doubt and insecurity easing of late
  • 1st quarter downturn will end in a few months
  • China dependence is decreasing with the re-onshoring of manufacturing to the US
  • unemployment is rising slightly which helps keep wage demands down
  • Earnings are slated to increase by an unthreatening 1.3% YoY with topline sales expected to grow by 3.1%
  • Presidential elections are 10 months away with the tax-cutting Donald Trump in the lead
  • A defeat of Joe Biden translates to pro-business policies which greatly stimulates the economy
  • Goldman Sachs sees the S&P hitting 5100 this year
  • Chips Act and infrastructure spending should bolster economic growth

After a flat to a downward slide in January, the Dow Jones, S&P, Russell 2000 and NASDAQ are perking up again. Is the big rally we’re all hoping for? Much of the optimism might still be traced to the FED easing rates, but more analysts feel the FED might not lower rates much until later this year.

Inflation rose a little from November, however as this chart shows, inflation is clearly on the downtrend.

At this point, you’re wondering which sectors are going to boom this spring, and which individual stocks will rocket. Certainly, the Russell 2000 has some hot stocks rocketing right now. The overall trend for the Russell is heading upward yet there are still concerns about the economy.

Russell 2000 Chart
Russell 2000 Chart courtesy of Google Finance.
Top stocks overall January.
Top stocks overall January. Screenshot courtesy of Barchart.

Hot Stocks by Weighted Alpha

Barchart shows us those stocks that are rising best in the last 12 months to show a solid trend upward, while weighting those with the strongest price growth of late. As usual, Super Micro Computer, and Gigacloud, are present, but we wonder where Nvidia, Google, Amazon, Apple, Tesla, Microsoft and the magnificent stocks are lately?

Top stocks weighted Alpha Screenshot courtesy of Barchart.
Top stocks overall January. Screenshot courtesy of Barchart.

Hottest Sectors this Week

Perhaps not surprisingly, technology, consumer staples, and communications lead the way. Materials and energy leveled upward but are not expected to do well for the next few months. The Dow was lagging because of poor economic news.

Top Sectors this Week.
Top Sectors this Week. Screenshot courtesy of CNBC.

With the economy ready to grow, the Russell 2000 small caps have to be what everyone has their eyes on. The small caps and the Russell have taken in on the chin for quite a while now, while investors hid their money in the large caps.  Demand for goods is down considerably while services such as travel, consumer discretionaries, and technology.

Have a look at the 3-month and 6-month projections for the stock market and collectively you’ll see the bull market horizon is not far off. And view the 5-year forecast for better clarity for the road ahead. Getting a grip on the macro picture is important, and don’t forget that politics is the dictator of markets and they can still throw a monkey wrench into this (high rates, regulations, anti-stimulus spending bills).

A lot of stock market advisors seem to think the coast is clear and it’s not a parade to nowhere. As this chart from Google Finance shows, this rally is already strong. The key the S&P 500 (SPX) was up over 8% in November. See the 2024 stock market forecasts down toward the bottom of this post.




Sure the economy will slow in the 3 month to 6 month term, but that is exactly what’s needed to set the stage for a massive stock market price surge in 2024/2025.

“Among the leading indicators, deteriorating consumers’ expectations for business conditions, lower ISM® Index of New Orders, falling equities, and tighter credit conditions drove the index’s most recent decline.” — Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board.

Whatever drives demand and costs down is the source of delight for the mid to large-cap companies, and the FED too.

Breadth is finally starting to broaden out to levels more commensurate with bull markets,” said Adam Turnquist, chief technical strategist at LPL Financial. “This has been one of the keys to calling this recovery sustainable.” — Reuters news report.

AAII Investors Survey: Sentiment Improves.
AAII Investors Survey: Sentiment Improves. Screenshot courtesy of AAII.com

Will Fear of Missing Out Also Boost the Stock Markets?

FOMO investors are afraid of losing out and if they start moving all that money from the money markets ($4 to $6 Trillion estimated) then stock prices could rocket. It’s definitely time to own something. You may find the best stocks to buy today, or next week are a basket of large caps, but for those who demand more, the Russell 2000 small caps are likely where you’ll get rich.

This environment where rates are cooling, inflation is moderating and the Fed is on the sidelines, that is typically a good backdrop for risk assets. Typically when rates start to move lower, you get valuation expansion and the areas that we could see some more meaningful valuation expansion is outside of large-cap tech.” — Mona Mahajan, senior investment strategist at Edward Jones

Interesting stock picks:

Arm Holdings (ARM), United Rentals (URI), Toll Brothers (TOL), D.R. Horton (DHI), TopBuild (BLD), InterContinental Hotels (IHG), Marriott Worldwide (MAR) and Palantir Technologies (PLTR).

AI technology, homebuilders and travel companies are the best stocks to buy. I like DR Horton and Toll Brothers outlook for the next few years. The demand for housing is intense with resale properties unable to be sold with severe shortages (costs, interest rates, materials shortages, lack of government support). As mortgage rates fall, hungry, impatient buyers will jump on new homes available on the market.

Certainly, the 7 million new illegal immigrants will need everything from housing and furniture to cars and clothing.

The November 2024 election is only 11 months away.  It’s hard to ignore this growing factor for the stock market outlook.  If President Trump is re-elected, taxes and spending would drop and the FED rates forced downward. Business likes that kind of thing.

When Will all that Money Market Money move over to Equities?

Markets have suffered low volume and disinterest for sometime, yet $5 to 6 Trillion in money markets is one reason to hang in there with your best picks.  Not all of that money will move, but a good chunk of it will by end of 2024.  If Biden wins, then money will retreat to the money markets.

Year to date, NASDAQ and the S&P 500 have persevered well. As interest rates ease, the NASDAQ was positioned best for growth, which means US tech stocks might be the best bargains. Here are your top-performing tech stocks of late on the NASDAQ exchange. With the coming growth of AI, Nvidia has caught the eye of investors.

Here are your high flyers from the last month. As you can see, some smart investors picked the right stocks and made a fortune.

Morgan Stanley pointed out in their Stock Market Outlook 2023 report, the stock market does very well in non-election years (+71%), and not badly in Presidential election years (40)%).

6 Month Stock Outlook

By April of 2024, we might be through most of the bad news and economic crisis. The economist’s dour predictions of a 2024 crash/downturn will be done. By then, the Dems will have to capitulate on spending to reduce inflation, and that will drive a massive upward shift in the DOW, S&P, NASDAQ and Russell 2000. See more on the 6 month S&P forecast.

If the FED rate drops and mortgage rates fall, it could stimulate the housing market which fires up everything. There is a crisis in the multifamily sector for overleveraged builders, but those that get through it will see their sales improve by next spring of 2024.

The 5 Year Stock Outlook

For the period 2024 to 2029, we’re looking at impressive growth. This is mostly fueled by lowering interest rates, expanded oil and gas production, bringing manufacturing back to the US, and government spending more in line with reality instead of ideology.  The US leadership in AI and microchip manufacturing is key since AI will increasingly influence manufacturing, services and the financial sector. Perhaps even the AI stock market software tools will be useful then. See more on the 5 year market outlook and even check out the 10 year forecast.

Key Market Signals to Watch

Government Debt Crisis and Shutdown:  key driver of this current downdraft in stock prices. There will be damage as government credit rating and suppliers are affected after the shutdown. Lower spending means companies will review their risks and their decision to work with the US government going forward.

Lower Bond and Treasury Yields:  Right now the FED is sticking it to the equities market due to their desperate search for cash to pay out on debt liabilities. That’s drawn money into the bond market for comparatively weak ROI for investors who want a lot more than a few percent growth.  Only equities pay off big and create millionaires. Charles Schwab expects yields to fall in Q3 and into 2024 as inflation continues to cool.

Stock Markets Heading Down:  The last 3 months have been strong, but overall support for a strong Q4 is weakening, and Q1 2024 is looking cloudier with rain in the forecast. Yet, after March, investors may the sun shine through.

Regional banks stocks: they’ve seen their stock prices fall strongly last week. The FED noted in its Loan Officer Survey that “Banks reported tighter standards and weaker demand for all commercial real estate loan categories.” Higher for longer interest rates combined with tighter lending standards threaten to slow the economy which relies on credit (real estate).

New Inflation Data: New inflation data released from the Bureau of Labor Statistics showed the (CPI) a 0.3% increase in December to 3.4%, following a 0.1% rise in November. Energy, producer prices and import inflation are consistently negative.

Inflation chart USA.
Inflation chart USA. Screenshot courtesy of Cleveland FED.

FED Pivot Timing:  There is no consensus about the FED easing cycle for 2024. Some believe a .25% cut is due in March leading to a full 1% decline over 2024.

Rising Oil and Natural Gas Prices: OPEC looks weak as the US pumps a record 13 million barrels of oil per day, and a very warm winter has led to plummeting natural gas prices. Although middle east wars are causing oil supply fluctuations, it is likely supplies will flow even better in the year ahead, to help keep energy prices down at least for 2024.

Stengthening US Dollar: the US dollar had weakened great but is now on the rise once more (103 dollar index) and that will help foreign investors buy more in the US or invest in fast growing US companies.  US exports should enjoy a short period of international trading advantage.

$6 to $8 Trillion Cash in Waiting When the Market Gives the Green Light

Investors still hoard a lot of cash, at record levels, and are still waiting for the stock market to really turnaround. During the past year, US investors holding cash were hit badly and few FX experts are calling for a resurgence in the greenback.  A strong persistent bull run should draw them back setting up a strong upswing in all indexes.

Money market funds are still swelled at $5.3 Trillion with inflows infusing another $599 Billion into the sector, according to a Bank of American report. However, the last time we saw huge inflows like that was back in 2008 after the Lehman Brothers collapse.

Forecasts for the S&P

According to Goldman Sachs, the S&P 500 index is expected to rise to 4700 by the end of 2024, representing a price gain of about 5% and a total return of around 6%.

JPmorgan is getting all the ink right now with their black forecast of a 8% drop in 2024.

Yahoo Finance crafted this nice infographic on analysts S&P500 2024 predictions.

S&P 500 2024 year end Forecasts.
S&P 500 2024 year end Forecasts. Screenshot courtesy of Yahoo Finance.

Dow Jones DJI Projections

Currently, for year to date, the Dow Jones is underperforming and Dow Jones stocks are barely up for the year. The economic slowdown, with the rapid rise in credit costs, has stunted manufacturing.

This chart from Barchart (one of the best investing websites to subscribe to) shows few Dow Stocks were thriving despite today’s great rise. However, there will still be a great buy the dip opportunity. Investors should review oil stocks since the price of oil is suppressed. Commodities and energy industry experts believe oil prices will rise — either through OPEC cuts or the depletion of the Special Petroleum Reserve.

What Do the Economists Say about a Recession?

Ethan Harris, head of global economics research at Bank of America Corp. “We’re either going to have a weak economy or a recession.” — TBS News Report

Jamie Dimon of JP Morgan said there’s a 66% likelihood the U.S. is headed into a mild recession or something even worse.

We put the odds that the economy will suffer a downturn beginning in the next 12 months at one in three with uncomfortable near-even odds of a recession in the next 24 months,” said Moody’s Analytics chief economist Mark Zandi said last May. — Washington Post.

Are Investors Not Realizing the Bear Market Has Left?

Lael Brainard, usually a more dovish policymaker, said she expected “a combination of rate increases and a rapid balance sheet runoff to bring U.S. monetary policy to a more neutral position later this year. Further tightening would follow as needed” — from CNBC report.  So far, pretty accurate.

Forecasts 3 Months to 5 Years to 10 Years

Getting a clear view of the economy in the next 3 months to 10 year framework takes a little study. You can view more on the immediate market situation, the 3 month outlook, 6 month outlook, 5 year outlook and 10 year outlook. A smart investor will make themselves very aware of each forecast period.  The current market view will disappear and like a slide show, move to the next period.

The five year to ten year outlook is steadier and it’s important to consider that politically, the intent is to bring industrial production back to the US. That single factor should help view the future more optimistically. Interest rates, mortgage rates and lending to small businesses should all improve.

Stock Market Crash Possibilities

The general mood is that we’re in for a soft landing and the economy will not collapse. That pretty well negates a crash, although some experts are still playing it safe. It’s not risk off for top fund and investment managers.

Here’s 7 Factors to Watch as Signals of a Downturn

  • inflation persists or rises (wages, energy, consumer prices, rent)
  • government insists on printing more money and spending more
  • Interest rates rise (could go up further)
  • disappointing earnings in Q4 (consumers pulling back spending fast)
  • geopolitical conflict such as China/Russia strife (that will intensify)
  • regional bank crashes (believed to be done, but some concerns remain)
  • oil price shocks (yes, oil prices are rising fast with supply down)
  • supply chain disruptions as manufacturing returns back from China

It won’t be a trade war, but a negotiation of foreign involvement in the US and how to avoid trade sanctions and tariffs.

What’s the Long Term Investment Outlook?

The 10 year stock market outlook is less certain of course, but consider that Millennials and Gen Z’s will slowly form more families and this is a massive number of people and a high spending phase of their lives. Additionally, millions of illegal immigrants flooding into the country in their 20’s to 40’s represents additional market demand. Demand drives prices and economic growth which fuels growth for many of the stocks above.

As interest rates and mortgage rates fall, the business community can enjoy a return to profitability while banks resume normal lending for credit, business and buying homes. The 2024 outlook for the stock market is wonderful!

Check out this list of Stock Trading Websites where you can launch your stock-buying campaigns.

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