Five things to watch for US stocks in 2024

A wild 2023 for stocks USA is coming to an end and investors They are full of optimism for 2024 as the S&P 500 index is very close to its first all-time high in almost two years.

While the Federal Reserve points out that it is probably already over with the increase in interest rates To control inflation, markets are increasingly focused on risks beyond monetary policy, such as the outlook for the economy, earnings and the November presidential election in USA

A key challenge for investors will be assessing the lagged impact of the inflation cycle. Fedwhich has the strategists of Wall Street divided over where stocks are headed next year.

Of course, many were caught on the wrong side in 2023 as they predicted a pessimistic outlook, but the S&P 500 rose more than 24% despite banking collapses, fears of a recession and the highest borrowing costs in decades.

Rate cut

Shares have been supported in recent months by growing speculation that the Fed will begin reducing borrowing costs in mid-2024. Markets are pricing in rate cuts earlier and deeper, and swap traders are betting that the central bank will cut rates by about 150 basis points next year, double the U.S. projection. Fed bankers.

He S&P 500 is less than 0.5% from a record close last reached on Jan. 3, 2022. It is also about 1% below the average full-year profit, forecast by nearly two dozen analysts in a survey released on December 19, which predicted the index would end 2024 at 4,833.

Growth of big technology

From Nvidia Corp. to Microsoft Corp., the Seven Biggest Tech Stocks in USA. have been responsible for 64% of this year’s S&P 500 rally through last week due to the trading frenzy. artificial intelligence. The “magnificent seven” – which also includes Amazon.com Inc., Apple Inc., Alphabet Inc, Meta Platforms Inc and Tesla Inc – are expected to post 22% profit growth next year, double the advance of the S&P 500, data compiled by Bloomberg Intelligence show. The key is how much of that is already built into stock prices, especially given rising expectations of a soft landing for the economy.

According to Louis Navellier of Navellier & Associates, six of the seven stocks look good heading into 2024. Only Apple will be left on the sidelines without a cutting-edge product (or technology) to improve its results, he wrote in a report.

US Elections

An election year with a sitting president is historically a bullish scenario for US stocks. Since 1949, the S&P 500 has averaged a gain of nearly 13% in those election years, according to the Stock Trader’s Almanac. When there is no incumbent president in the presidential race, the index averages a 1.5% loss for the year.

Part of the reason for stock gains is that rulers often implement new policies or push to cut taxes to boost economy. economy and confidence before the election.

Asian risk: Bank of Japan, China and India

While the Nikkei 225 Stock Average rose to a three-decade high in 2023 thanks to the Bank of Japan’s ultra-loose policy and a weak yen, Japanese stocks face a headwind in early 2024. The central bank maintains the last negative rate in the world, but two-thirds of economists predict that in April it will make its first rate hike since 2007.

Meanwhile, after another disappointing year for bulls on Chinainvestors will closely watch the National People’s Congress meetings and the third plenum for Beijing’s 2024 growth target, and clues about the fiscal stimulus.

India is a big bullish bright spot as the nation has high-profile manufacturing contracts, increases infrastructure spending and emerges as an alternative to China.

Policy of the ECB and the Bank of England

With the Stoxx Europe 600 index approaching its highest level in two years, cyclical stocks that are highly exposed to Asia may be the key to higher profits, given the potential fiscal boost from China. While a weak economy will likely affect European profitsanalyst consensus estimates are for earnings growth of about 4% in 2024, depending primarily on rising margins, Bloomberg Intelligence data shows.

Bond markets expect the European Central Bank cut rates in April, which could provide an additional boost to stocks in the region. The Bank of England is expected to lag behind the Fed and of ECB regarding monetary flexibility, since the United Kingdom It has one of the highest inflation rates among the Group of Seven countries.