2024 U.S. Stock Market Outlook: A Return to Basics
Key Takeaways
* In 2024, the focus will shift from macroeconomic and behavioral catalysts to individual company and sector fundamentals.
* Economic growth is projected to decelerate throughout the year before rebounding in the third quarter.
* The stock market is fairly valued, but opportunities exist in specific stocks.
* The Federal Reserve is anticipated to reduce interest rates, reaching 2.75% by 2026.
* GDP growth is expected to surpass consensus estimates due to labor force expansion and productivity gains.
* Inflation is projected to align with the Fed’s 2% target by 2024.
2024 U.S. Economic Outlook
Economic growth is anticipated to moderate in 2024, with a gradual decline in the growth rate each quarter until the third quarter, followed by a modest reacceleration. This slowdown is attributed to several factors, including the impact of higher interest rates, a reduction in government spending, and a plateau in the manufacturing building boom. Consequently, unemployment is expected to rise slightly, averaging 4.2% and peaking at 4.5% in the fourth quarter. Wage growth is projected to decelerate, aligning with the Fed’s 2% inflation target by year-end.
2024 U.S. Stock Market Outlook
The stock market is generally considered fairly valued, presenting opportunities in individual stocks. Value stocks remain undervalued compared to fair value, while core and growth stocks trade at a premium. Small-cap and mid-cap stocks are undervalued, while large-cap stocks are slightly overvalued. The “Magnificent Seven” stocks, which drove 75% of the market’s return in 2022, are expected to perform more in line with the overall market in 2024. The anticipated interest rate cuts by the Fed are likely to support stock prices throughout the year.
Investment Opportunities
* Undervalued Sectors: Communication services, energy, real estate, and utilities.
* Overvalued Sectors: Consumer cyclical, industrials, and technology.
* Stock Picks: FMC, Newmont Mining, Hasbro, Realty Income, Comcast, APA, ExxonMobil, Allegion, CNH, RTX, WK Kellogg, Tyson, and WEC Energy.
Fixed-Income Outlook
Interest rates are projected to decline in 2024, with the 10-year Treasury yield reaching 2.75% by 2026. The corporate bond market is neutral, with investment-grade and high-yield spreads near historical lows.
Risks to the Outlook
* Major Recession: A severe recession could occur if the impact of Fed rate hikes materializes abruptly.
* Overheating Scenario: An overheating scenario could unfold if consumer optimism and asset markets become overheated.
Conclusion
2024 presents a unique investment landscape, emphasizing individual company and sector fundamentals. While economic growth is projected to moderate, opportunities exist in undervalued stocks and sectors. The anticipated interest rate cuts by the Fed are likely to provide support to stock prices. Investors should exercise caution and conduct thorough research before making investment decisions.