Stock Market Forecast
Investors have been waiting a long time for clarity on which direction the economy would head and whether disaster loomed due to the debt bomb, low tax revenue, and continuous high interest rates.
Today, everyone received clarity with the election of President Trump. The current bull run is likely to continue driven by his pro-US business agenda, with import tariffs, lower taxes, and deregulation creating a positive environment for new business creation. See the full list of bull market signals.
Wise investors are viewing the road ahead more positively and the 3-month, 6-month, 5 year and 10 year outlooks are all much rosier today. Today the Dow, S&P and NASDAQ hit record highs as the news of Trump’s win lit up investors.
As the graph below shows, the Russell 2000 was up almost 6% and the Dow rose 3.5% on the day. And this is all before an expected Santa Claus rally later in December. The question is, are investors getting carried away in mass euphoria, or will the indexes hit heights even Tom Lee can’t comprehend?
In this blockbuster Trump win, the US House and Senate will be Republican-controlled too. This makes Trump’s legislation likely to gain faster approval and end the bureaucracy nightmare that made the US an unfriendly place to do business. The removal of harmful regulations is the underappreciated positive as this will speed up business development and reduce costly hampering of US manufacturing.
Steelmakers to Banks to Oil Companies
The rise of the Dow Jones tells us investors expect US industry and innovation will be given free rein to dominate the world, and the end of dependency on China gives investors and all American citizens the confidence they can’t be blackmailed.
With taxes, interest rates and regulations on the decline, business in America can be profitable again, and thus will attract trillions in investments from around the world. The US is the place to be for business and industry.
Warren Buffet is sitting on a mountain of cash showing he’s ready to react regardless of the election. However, given the bullish rise of the S&P, Dow and NASDAQ to record levels, it seems strange that he isn’t jumping in with full conviction. We’ll see when he decides to jump into the fray. One stock market expert/fund manager explained today in a CNBC interview that they are waiting for
Does this mean, he knows stocks are highly overvalued, or he’s leaning toward a Dem win which will mean investors will withdraw, and a housing market crash and stock market crash might happen?
Back to the Bull Market Run
In a CNBC interview, Sam Stovall, chief investment strategist at CFRA Research said, “If we’re not really getting the kind of confirmation that the market is worth this elevated price, you know, then we could end up seeing a digestion of gains coming fairly soon.” Are stocks worth it, or is it all hype and unrealistic valuations?
Today Tom Lee explained that the Trump win wasn’t baked into the markets, or they wouldn’t have reacted like they did today. If the bull has just given a shot of steroids, the week ahead will be full of guesses as to where we’ll be at year end and in 5 years. Which might mean there is little risk and this is a golden era of investment.
This graph tells us the strength of this lengthy bull market run as interest rates begin to ease and the market begins to broaden out beyond the Mag 7 and megacaps.
The economy was struggling under the Democrats with insufficient tax revenue to grow their inflated government bureaucracy. All of these key trade statistics will improve over the next few years.
Fear and Greed Index
CNN’s fear and greed index has pointed to extreme greed for some time now.
Lagging effects of high interest rates are really biting in right now harder than ever given employment growth is stagnating and investors have lost confidence. US GDP is okay, but US manufacturing PMI is sinking. That will change by December, in, fact last months PMI was up. However, of the 14% of S&P 500 companies that have released their 3rd-quarter results, 79% have beaten expectations mildly. So performance has been there and now with lower taxes, deregulation, and lower energy prices, the sky is the limit.
Is it manufacturing repatriation driving it? Is it only the expectations of AI? Is it continued stimulus?
As you’ll read below, some brilliant minds are giving us their view of what will lift the Dow Jones, S&P, NASDAQ and Russell 2000. However, too many of these investment firm analysts revise their forecasts to cover up what they really thought. Shouldn’t they be more poised and consistent about the FED rate outlook, consumer demand, and corporate earnings? Is performance that difficult to assess?
Much of what we’ve been discussing the last few years, is suddenly irrelevant. Uncertainty is out, which is a huge boost to investing by itself. Aside from the Presidential, House and Senate change, we should be looking again the fundamentals of profitability. What is it about this economy that gives it its potential?
Positive Signals
Ed Yardeni, in a Fox Business interview, expressed confidence that the US economy is on track and should recover next year. He says inflation is under control and won’t return. We might have some doubts given supply shortage issues haven’t been resolved. A Trump win on the Nov 8, business will be delighted, thus fueling growth and CPI index gains. July’s Consumer Price Index inflation data will be released on August 14, 2024.
Goldman Sachs says China’s oversupply is easing and with tariffs and sanctions, what China does send into the US will be more expensive. Citi Bank believes oil will drop to near $60 a barrel next year, which would give the US economy and US consumer a big financial boost. That will aid lower inflation.
As the US economy revs up in 2025 (depending on the Nov 5 election), it’s a certainty that inflation will grow as we move through 2025. Housing construction is slowing and as rates fall, buyers will bid up home prices, new or resale homes.
Housing, rent, and gasoline prices are big parts of the CPI index and they will all move higher in 2025. They are stubbornly difficult to lower. In one year, the housing market will be revived, however for this fall, the housing market will suffer.
Goldman refers to AI advancements and positive mega-cap earnings, as though nothing else exists in the economy. This has made investing dangerously narrow and at some point a broadening has to happen. That will make the Russell 2000 stocks the best place to be. Investors seem to be sensing that of late.
This minor confidence in the Russell 2000, is just a hint at what will happen with a full-blown market transition to small-cap stocks. Studying the Russell stocks is what most investors should be doing as they sit on their current portfolio. Many are moving money from the NASDAQ over to small caps. However, that move might be too early. This fall may not be pretty if the FED doesn’t cut rates enough. A 25 or 50 basis cut may be disappointing.
Will a Broadening Out of the Market Occur this Year or Next?
Can a marketing broadening to small caps possibly occur if rates don’t go down? Here’s what Marketwatch is saying about a broadening. Money has been leaving tech stocks of late, and at some point, we’ll see an exodus from safe haven mega caps. For now though, investors are keeping their money in them.
If you’ve chased the AI trend, from Q4 of 2023, you might have done well. However, we’ve seen that when the macroeconomy suffers with gloom and doom, AI companies don’t look as promising. They dove after April, when the economic outlook soured. We wonder what is going to happen after the Presidential election. Because a Trump win would likely mean lower taxes and reduced regulation for US companies and perhaps lower interest rates. That promise has to mean investors are salivating at the opportunity to invest in US stocks. Is it still to early?
And which investment strategy are you partial too? Is it a all large cap tech focus, or diversification strategy (see what the Motley Fool says about how to diversify) or is a defensive strategy the best? See what Morningstar feels the most underrated stocks are right now. I’d like to hear your thoughts on that on Linkedin.
A best prediction about investment timing is that after the next market correction is the ideal time to buy. Many investors might already know that and are quietly reviewing the best stocks to jump on.
Most economists and stock market analysts believed interest rates would have declined by now, but it hasn’t happened. A few see rates staying high till 2026, which is hardly encouraging for stock price growth. A 5% return in money markets might look safer and more productive. If you don’t invest, you won’t be getting on top of what could be a grand opportunity ahead.
Consumer Spending Will Improve
Consumer spending has risen, boosted by government spending and stimulus money sitting in bank accounts and money markets. And now we wait the movement of that $6 Trillion into the equities markets away from bonds and treasuries. Trump will switch to tax generation from a booming economy to fund a down-sized government, optimized by Elon Musk.
Will the Stimulus Funds Keep Flowing?
Americans may not realize or not want to think about is how inflation and GDP is currently supported by government stimulus funds including the Dems infrastructure improvement budget.
While hedge fund managers celebrate the layoffs, promised AI efficiencies, and outsourcing to India, inflation is sticky inviting prolonged headwinds for real estate markets, small business growth, and tax revenues for the government.
The housing market has stagnated while home prices continue to rise in most cities due to shortages. Millions of mortgages are coming due at 6+ rates, which is unaffordable for many. The longer the rates stay high, the more damage will come out of the housing market. When the housing market lags, it’s spinoff economic activity furthers deflates and manufacturing and retail sales slide.
Summer 2024 is Here. What’s Changed?
Summer brings families to spend on travel, food, home entertainment, and more giving the economy a lift. it’s raised food and gasoline prices,
Hot Stocks!
Gigacloud continues to shine despite its decline lately, while health stocks have surged. Redwire at $7.00 a share might be worth a look. 4 analysts give it a strong buy rating.
The economic and trade break with China is certain and this bodes well for the US economy.
Stock Market Predictions for 2024
What is a stock market predictions worth today? Let’s look back at Wall Street’s forecast for the S&P in 2024 (we’re at 5600 now).
And here are the forecasts from late 2023. What is your impression of the major banks’ predictive capabilities?
Goldman Sachs Research forecasted the S&P 500 index would end 2024 at 4700, for a 12-month price gain of 5% and a total return of 6% including dividends. We’re far beyond that, which means these companies have a far too fearful outlook that investors are beginning to disrespect.
As you can see, most investment companies are bullish about 2024 with a range of about 8% to 10% for the optimistic, most noted authorities. Of course, we’re well up already two months into the new year and it looks like these will be revised upward as increasing good economic news is reported.
The US economy is in excellent condition. Unemployment is 3.7%, inflation is only 2.8%, income is up 3.4%, consumer spending continues moderately, and US national income is up and forecast to rise continuously to 2029.
Let’s Review why the Stock Market Forecast is so Rosy
- inflation continues to lower
- FED rate cut expected in June/July and a full 1% lower by 2025
- US GDP slowing thus inflation may be past
- US dollar weakens strengthening exports
- $6 to 8 Trillion in money markets could move to equities as interest rates fall
- materials prices on a downward trend (natural gas, oil, lumber)
- innovation and investment in AI contributing to a rebuilding of the economy and a renewing of many products in use (laptops, smartphones, autos)
- investor doubt and insecurity have eased of late given the rally is so persistent, weathering all bad news
- normally sluggish 1st quarter downturn will end in a few months
- China dependence is decreasing with the re-onshoring of manufacturing to the US
- trillions in US infrastructure spending due to start this year
- wages are rising fueling consumer spending
- job growth will be strong due to lower taxes and deregulation in industries
- earnings are slated to increase by an unthreatening 1.3% YoY with topline sales expected to grow by 3.1%
- Presidential election 8 months away with the tax-cutting, deregulating Donald Trump in the lead
- the defeat of the Democrats translates to pro-business policies which gives investors tremendous relief
- Goldman Sachs sees the S&P hitting 7000 by end of 2025
- Chips Act and infrastructure spending should bolster economic growth
After a strong 3 months, the Dow Jones, S&P, Russell 2000 and NASDAQ are gaining speed.
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.
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.
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).
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.
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.
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.
Strengthening 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.
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
There are very few credible market economists who are expecting a crash, although a few believe a downturn in the summer will occur as inflation creeps back up, and the FED responds with a hike. The FED may not hold rates where they are if inflation does pick up by June. It’s sufficient to keep the FED out of the markets and let laisses faire take hold, to the degree it’s currently allowed.
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 and oil sanctions enforced)
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 represent 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!
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