S&P 500 Index Forecast for 2024

The S&P 500 index is projected to experience a significant rally, reaching 5,200 by the end of 2024. This forecast comes from strategists at Oppenheimer Asset Management, who are joining a growing group of Wall Street analysts predicting all-time highs for U.S. stocks in the coming year.

Transitioning Into 2024

Oppenheimer's strategists, led by John Stoltzfus, envision 2024 as a year of transition. They anticipate that markets will adjust to the Federal Reserve's pivot from a restrictive monetary policy stance to a more accommodative one. This shift is expected to address the slowdown in economic growth observed in early fourth quarter data of 2023. As a result, inflationary pressures should be alleviated, prompting the need for the Fed's tight policy to diminish.

Projected Interest Rate Changes

Stoltzfus and his team believe that the Federal Reserve will start to decrease interest rates by the second half of 2024, possibly extending into the fourth quarter of next year. This view counters the market expectation of a rate cut occurring in the first quarter. The strategists assert that expectations among some market participants for a series of rate cuts in the first half are overly optimistic. According to Oppenheimer's analysis, an interim rate cut or even a slight increase in rates is more likely to occur before the Fed concludes its current benchmark rate hike cycle.

Accounting for Possible Adjustments

Despite this projection, Stoltzfus and his team acknowledge the potential for the central bank to raise rates slightly early in the year if inflation does not continue its downward trend.

Market Predictions and Probabilities

Currently, fed-funds futures traders predict a 98% likelihood that the central bank will maintain interest rates at 5.25%-5.5% during its upcoming meeting. Looking ahead to January, there is a 94% probability of no action being taken. However, the probability of at least a 25-basis-point cut occurring by March has decreased to 38.4%, down from 57.4% the previous week, according to the CME FedWatch Tool.

Fed to Maintain Stability Amid Recession Talk

In the realm of stocks, Stoltzfus and his team are optimistic about the future performance of cyclical sectors such as technology, communications services, and consumer-discretionary. These sectors have been driving the stock market gains in 2023 and are expected to continue doing well in the coming year. However, it is anticipated that gains will also extend to other sectors and to small- and midcap stocks.

Despite the challenges posed by the economic and interest-rate environment, Oppenheimer’s strategists believe that corporate revenues and earnings will continue to grow throughout 2024. They project that S&P 500 SPX companies will achieve earnings of $240 per share. Moreover, the price-to-earnings ratio for the large-cap index is predicted to rise towards 21.7 times 12-month forward earnings in 2024.

Currently, the S&P 500 index is trading at more than 18 times forward earnings, according to FactSet data.

Stoltzfus, widely recognized as one of Wall Street's most bullish strategists, accurately predicted the rally witnessed this year. He now shares an optimistic outlook for 2024 with Fundstrat’s Tom Lee, another staunch supporter of equity investments. Notably, their target for the S&P 500 by the end of next year is 6.1% higher than the average forecast of 14 sell-side strategists surveyed on Monday.

Their bold prediction for substantial gains in 2024 is echoed by Ed Yardeni of Yardeni Research, who foresees the S&P 500 soaring to 5,400 points next year and even reaching 6,000 by 2025.

As of early Monday afternoon, the S&P 500 had risen by 0.1% to 4,609, while the Dow Jones Industrial Average DJIA had gained 0.2% to 36,322. Conversely, the Nasdaq Composite COMP had dipped 0.1%, according to FactSet data.