Stifel Chief Equity Strategist Barry Bannister has raised his S&P 500 target to 4,650 by mid-2024, which is just a little over 1% above its current level.
Tech Dominance Expected to Ease
Bannister predicts that the S&P 500 will reach this new target as some of the leading tech giants relinquish their control to cyclical value sectors. Sectors such as banks, energy, financial services, transport, and insurance are anticipated to take center stage.
However, with major companies like Apple, Amazon.com, Alphabet, Meta Platforms, Microsoft, Nvidia, and Tesla accounting for more than a quarter of the index, their reduced dominance alone could hinder progress if smaller components do not compensate with significant gains.
Resilient Economic Growth and Inflation
Bannister believes that the shift in market dynamics will occur due to robust economic growth, inflation remaining persistent, and Federal Reserve tightening measures.
Contrary to consensus views, Bannister does not expect the Fed to cut interest rates in the first half of the year. He anticipates that favorable economic indicators will prevent the central bank from taking such action. He also foresees a rise in S&P 500 earnings per share and a reduction in unemployment by spring.
A Pseudo-Recession and Labor Imbalance
Bannister argues that between March of last year and March of this year, the nation experienced a pseudo-recession. Although excess labor demand decreased during that time, the number of actual jobs remained unaffected. This phenomenon was masked by the lasting effects of pandemic-related spending.
Since then, the economy has been expanding, but the labor imbalance remains unresolved. There are still more job openings, particularly in skilled fields, than there are available workers to fill them. Consequently, wage growth is expected to surpass the Federal Reserve's preferred level. Bannister suggests that the previous decade's 3% inflation ceiling may become the floor for this decade.
In light of these factors, Bannister emphasizes that the Federal Reserve plays a pivotal role in determining the risk of a double-dip recession in the second half of 2024.
Concerns Amidst Market Euphoria
Bannister is not the only voice expressing concerns amidst the recent market excitement. Many are worried about inflation persistence and the potential for a downturn.
The Path Ahead: Navigating the Global Economy in 2024
Citi's Global Chief Economist, Nathan Sheets, provides insights into the current economic landscape and offers projections for the future. While the positive data in 2023 signals a potential soft landing for the global economy, Sheets emphasizes that the last leg of the inflation fight will be challenging.
A Mix of Factors Impacting Growth
Sheets highlights that the combination of stringent monetary measures implemented by central banks and a decrease in consumer demand for services will likely lead to labor market constraints and slower economic growth. Developed markets, in particular, are expected to face significant challenges, with some even falling into recession. The United States, for instance, could experience a recession by mid-2024.
Taking all factors into account, global growth is projected to retreat to 1.9% in 2024 before rebounding to 2.5% in 2025, according to Sheets' analysis. Despite these predictions, there is optimism that the S&P 500 will continue its upward trajectory, surpassing its previous record high and reaching 5,000 by mid-2024. Additionally, numerous financial institutions anticipate gains in the market for the coming year, fueled by a relatively mild recession or even a lack thereof. However, some argue that a discrepancy between investors' optimistic expectations and the reality of the economic climate could result in short-term volatility without necessarily causing significant stock losses.
Different Perspectives on Market Outlook
While many analysts concur on the positive outlook for market gains, Stifel's Bannister stands as an outlier. Bannister predicts that the S&P 500 will remain rangebound for nearly a decade due to prolonged higher interest rates favoring more conservative value-led returns. In essence, the next decade may not resemble the high returns experienced in the 2010s.
The Battle of Varying Forecasts
Bearish voices have somewhat receded in the wake of the market rally, with numerous strategists disputing Bannister's gloomy outlook. Investors, eager for continued gains, hope that the optimistic projections prevail over Bannister's cautious stance.
As we forge ahead into 2024, it is crucial for investors and market participants to stay attuned to the evolving economic landscape. While there is optimism regarding the potential for a soft landing and continued market growth, the last phase of the inflation fight poses formidable challenges. Despite differing opinions on the future market outlook, one thing remains certain—the path ahead is anything but predictable.