Stock Market Trends to Watch in 2024 – Opportunities and Risks

2024 stock market predictions appear promising despite concerns over an economy slowdown and rising interest rates that threaten household spending and corporate earnings. Experts advise investors to remain committed to the long term when making investment decisions.

Investors could turn their focus back towards stocks, particularly small-cap and value stocks. While during the 2022 bear market investors flocked to defensive sectors like commodities or government debt securities for protection, these may underperform in this recovery phase.

Economic Growth

Financial experts predict modest gains for the S&P 500 next year, driven by improved corporate earnings and an improving economic environment that should offset concerns about rising interest rates or potential recession.

The Federal Reserve is shifting away from interest rate hikes and expected to reduce its balance sheet next year, which could slow inflation while also decreasing borrowing costs – two key components analysts consider favorable to stock investors. Analysts predict 2024 could be an exciting year for stocks.

Veteran stock market watchers have learned a valuable lesson from 2023: forecasts can quickly turn sour. A variety of risks – high inflation, potential recession and rising interest rates that sap consumer purchasing power – have caused analysts to change their outlook for the market and analysts fear the worst-performing stocks, like “Magnificent Seven” tech stocks, may fall back while small-cap and value stocks may outshone them all.

Inflation

As 2019 begins, many investors are hopeful about their chances of a broad-based recovery that could push stocks to new records. Yet various issues – such as interest rates – could thwart those predictions.

Uncertainty remains over whether the Federal Reserve can move quickly enough to stop inflation from accelerating. While central bank officials have indicated they could cut rates three times next year, market expectations call for even bolder moves from them.

That discrepancy could send stock prices higher or even spark a correction. JPMorgan analysts expect high equity valuations, high interest rates and an economic slowdown to limit gains for stocks next year, giving rise to their price target of 4,200 for the S&P 500; they see strong support for defensive growth stocks like utilities and consumer staples as well as late cycle cyclical stocks as possible candidates; yet they’re wary about consumer finances with depleted savings accounts, weak earnings forecasts and geopolitical tensions as potential sources.

Interest Rates

Interest rates should decline, which will likely benefit equity markets. Historically speaking, periods following a string of Federal Reserve rate hikes ending and initial cuts beginning have proven especially favorable to stocks.

Inflation should continue its downward trend, helping the Federal Reserve seem less hawkish and eventually leading to lower rates. Investors must keep a close eye on inflation, however, as its presence could wreak havoc with consumer spending patterns and lead to consumer price decreases.

Small-cap and value stocks tend to trade at attractive discounts and should benefit from reduced interest rates, yet can still be subject to risks like economic slowdowns, inflation increases, recessionary threats and geopolitical unrest that pose threats to stocks. It’s therefore vital that investors develop a diverse portfolio so that they are ready for changes as the economic landscape shifts.

Corporate Earnings

The Federal Reserve’s recent dovish shift has created expectations that interest rates will decline this year and earnings should increase, yet some analysts worry these projections are excessively optimistic.

Recent global risk perception research by the Forum revealed that 63% of respondents expected turbulence and 3% anticipated global catastrophic events – creating significant perceived risk and an opportunity for mispricing, particularly as market sentiment toward changes to Federal Reserve policy subsides.

Bianco believes corporate earnings will surprise to the upside in 2024. He anticipates profits increasing 8.5%; although earnings growth won’t match GDP expansion like it did in 2023. Tech/digital, financials and energy industries could see strong earnings gains – however those gains alone might not be sufficient to offset slowing economic growth or higher-than-anticipated rates in the US.