Dec. 10, 2023 12:26 AM ET S&P 500 Index (SP500)
- We predict that the S&P 500 will end 2024 at around 4,450, based on macro drivers and liquidity conditions that will drive market earnings and multiples.
- We see a relatively quiet year in store, with a floor under the market, but a ceiling on economic and valuation upsides.
- We rate SP500 a "Hold".
This article presents a prediction for the S&P 500 in 2024, forecasting an end-of-year target of around 4,450. The prediction is based on a combination of macro drivers and liquidity conditions expected to influence market earnings and multiples. The authors rate the S&P 500 as a "Hold" and acknowledge the challenges of predicting market outcomes amid a dynamic economic landscape.
- Determinants of S&P 500 Prediction: The prediction centers on two primary factors: market earnings and valuation multiples. The formula used is expressed as {S&P 500 2024 Target = 2024 Earnings * 2024 Valuation}. The authors delve into the specifics of these two inputs, emphasizing the critical role of GDP growth, liquidity conditions, and sentiment in shaping market performance.
- 2024 Earnings Analysis: S&P 500 profits are analyzed as a function of GDP growth, both within the United States and globally. The authors consider leading economic indicators, examining trends in the U.S., Europe, the UK, China, and other markets. Quarterly earnings and profit margins are reviewed, leading to assumptions about modest global GDP growth, a 5% increase in aggregate sales, and a marginal decline in profitability.
- 2024 Valuation and Liquidity Environment: The liquidity environment is deemed favorable due to a decline in rate hike expectations, resulting in real interest rates climbing back above zero. The authors anticipate a long-term trend of monetary easing as the Fed gradually lowers rates. However, they note that the liquidity environment, while better than in recent years, is not overtly bullish. Valuation models are examined, and the S&P 500's current multiple is seen as somewhat disconnected from economic realities.
- 2024 Multiple and Predicted Range:
