Forecasting the S&P 500’s trajectory, most major banks in the US, including their asset managers, predict a marginally positive year for the index in 2024. However, views diverge significantly on the fate of the ‘Magnificent Seven’ tech giants.
Goldman Sachs analysts believe that the seven top-performing stocks in the S&P 500 - Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla - will outperform the rest in 2024. The benchmark index for large US stocks began this year at 3,820 points and currently trades at around 4,555 points, a 19 percent rise largely driven by these tech heavyweights.
According to Goldman Sachs, these companies exhibit faster expected revenue growth, higher margins, a higher reinvestment ratio, and stronger balance sheets than their peers. “The leading stocks will continue to perform well, though not as dramatically as last year,” said David Kostin, head of US Equities at Goldman Sachs Research.
Contrasting opinions
However, Mike Wilson, Chief Investment Officer at Morgan Stanley, disagrees. He doubts another robust earnings recovery for the tech giants in 2024, suggesting more opportunities lie in the other 493 stocks. “The likelihood of a correction among these favorites is high,” Wilson remarked on CNBC last week.
Vincent Mortier, CIO of European asset manager Amundi, also expressed skepticism. “These shares seem priced for perfection, but the reckoning will come when corporate results are released,” Mortier commented in a media call ast Thursday.
Modest overall returns
Goldman Sachs Research anticipates modest returns for US equities overall, with the S&P 500 projected to reach 4,700 by the end of 2024, about a 5 percent increase from current levels. The firm’s economists predict a 2.1 percent US GDP growth in 2024, a factor they believe is already priced into stock values. Equity multiples remain high, and while the Federal Reserve may cease interest rate hikes, cuts are not expected until late 2024.
In contrast, Morgan Stanley strategists, including Serena Tang and Vishwanath Tirupattur, forecast a recovery in US earnings growth by early 2024, projecting the S&P 500 at 4,500 by year-end. This outlook marks a shift from Morgan Stanley’s previously bearish stance.
Rounding up the bulls?
Bank of America Merrill Lynch’s US equity team, led by Savita Subramanian, remains optimistic about US equities for next year. Their confidence stems not from expected Fed rate cuts but from the central bank’s achievements to date. They even predict that the S&P 500 will close at a record 5,000 by the end of 2024.
Technical strategist Stephen Suttmeier from BofA noted that US stocks have “much more upside potential,” suggesting institutional asset managers still have buying power for a year-end rally. “Bull markets typically end with high conviction and euphoria - we’re far from that,” Subramanian observed in a 21 November note.
Investing strategy
JP Morgan Asset Management also leans towards cautious optimism. Their analysts label the S&P 500 as 20 to 30 percent overpriced, based on forward P/E ratios and US 10-year real interest rates since August 1998. Despite potential impacts from positive real yields, JP Morgan does not foresee a major correction, explained research analyst Nimish Vyas.
Madison Feller, a strategist at JP Morgan Private Bank, advises against staying on the sidelines. “History shows that investors who board at highs have not been profitable, but prices have typically risen by about 16 percent a year later and were higher after three years,” Feller said.
Other major financial institutions like Wells Fargo Investment Institute and UBS Global Wealth Management project the S&P 500 to reach between 4,600 and 4,800, and 4,700, respectively.