After several twists and turns, the S&P 500 has hit a series of new 2023 highs lately, driven by the optimism that the Fed is done with interest rate hikes. The benchmark has registered the longest streak of weekly gains since November 2019, closing at the highest level since March 2022. The solid trend is likely to continue in 2024, with many analysts turning bullish on the benchmark.
The S&P 500 has gained more than 20% so far this year but is shy of 4% from its record high in late 2021. SPDR S&P 500 ETF Trust SPY, the proxy version of the S&P 500 Index, has risen about 21% this year. Though most of the stocks in the ETF have returned handsomely, many are undervalued, as reflected in their lower P/E ratio than industry peers. The fund has good potential for the next year. The constituent stocks have a strong Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of B or better, suggesting their outperformance in the months to come.
These include Everest Group Ltd. EG, Comcast Corporation CMCSA, 3M Company MMM, Molson Coors Beverage Company TAP and DaVita Inc. DVA.
Fundstrat Tom Lee, who has been one of the most persistently bullish forecasters on Wall Street this year, expects that stocks will surge to a new all-time high in 2024 as the Fed shifts to a less restrictive monetary policy. He anticipates that the S&P 500 could soar to 5,200 by the end of 2024, marking a 13% increase from its current level. This optimism is partly based on the expectation that the Federal Reserve will cut interest rates next year as inflation eases. Rates, which have risen to a range of 5.25%-5.5%, could potentially drop to 3.2%-3.5% (read: What Lies Ahead of S&P 500 ETFs in 2024?).
Tom Lee said that narrowing credit spreads and a rally in high-yield bond prices suggest an ongoing liquidity rally. Despite significant withdrawals from stocks this year, cyclical stocks, bank stocks and small-cap stocks have shown an upward trend, indicating that the market is in a state of expansion, supporting the uptrend in equities.
Other Wall Street forecasters are also optimistic, with the U.S. avoiding a recession and inflation cooling. Major financial institutions like Bank of America, Deutsche Bank and Société Générale predict that the S&P 500 could hit new highs in 2024.
After the astounding surge of the “Magnificent Seven” stocks, the rally has been broadening out in recent weeks. As more underperforming members of the S&P 500 catch up, the index should continue to climb, even if the rise in the Magnificent Seven stalls out. Per a strategist at Bank of America, only about 24% of the stocks in the S&P 500 are trading within 10% of their all-time highs. This is notably lower than the historical average of 28%. This suggests that many stocks in the index may…
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