Anticipating the Stock Market in 2024

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By Ronald Tech

Investors must be elated with Wall Street’s performance in 2023 as the iconic Dow Jones Industrial Average (DJINDICES: ^DJI) reached a record high, and the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) gained 25% and 44% respectively, year to date through December 28.

Regardless of historical triumphs, the focus shifts to where the stock market is headed next. Predicting the future is as challenging as hitting a bullseye in the dark. Unfortunately, there’s no perfect forecasting tool; investors must rely on a blend of historical data, macro and company-specific information, and wisdom to make projections about the future.

Here are 10 predictions for the stock market in 2024, including macro forecasts that could impact equity performance.

A bear figurine placed on clippings displaying a plunging stock chart and declining quarterly bar chart

Image source: Getty Images.

The Looming U.S. Economic Recession

To begin, the most anticipated recession in U.S. history is expected to manifest in the new year.

The Conference Board Leading Economic Index (LEI), comprised of 10 inputs, has declined for 19 consecutive months. This unparalleled sign of an economic slowdown is unprecedented with the exception of the Great Depression and the 1973-1975 recession.

Follow the money, and a chilling account unfolds. Commercial bank credit has been on the decline since mid-February, reflecting intentional tightening of lending standards by banks.

Moreover, the M2 money supply, notable for its first decline since the Great Depression, suggests an impending economic downturn with diminished liquidity for transactions.

The Bear Market’s Resurgence

Although the U.S. economy and stock market operate independently, an economic downturn typically impacts corporate earnings negatively. Historical records show that roughly two-thirds of the S&P 500’s drawdowns have occurred after a recession, not before. Therefore, if a recession materializes, a bear market for stocks might ensue.

Additionally, stocks are not wallet-friendly, with the S&P 500’s Shiller price-to-earnings ratio soaring 90% beyond its 154-year average reading, hinting at an oncoming market decline.

A Shift in the U.S. Yield Curve

The yield curve, a leading indicator of the U.S. economy and stock market, has been inverted for 428 consecutive days as of December 28. While this inversion does not guarantee an imminent U.S. recession, history indicates that every recession since World War II has been preceded by an inversion.

However, the current inversion, expected to become the longest on record, is unlikely to persist throughout the new year. With a looming rate-easing cycle from the central bank, normalization of the yield curve is probable by year’s end.

An Unlikely Hero Amidst the Storm

If the Treasury yield curve inversion ends in 2024, highly interest-sensitive companies, including one of Wall Street’s most universally disliked industries, could benefit.

Market Predictions for 2024

Market Predictions for 2024

Amid the swirling tides of the financial markets, the future looms before us, ripe with potential yet laced with uncertainty. As we venture forth into 2024, the landscape of investment presents itself with a mixture of promise and caution, urging investors to tread with both acumen and vigilance.

The Impact of Yield-Curve Inversion on Mortgage REITs

For investors in mortgage real estate investment trusts (REITs) such as Annaly Capital Management and AGNC Investment, the yield-curve inversion has cast a shadow over their prospects. The narrowing of the net interest margin due to this inversion, coupled with higher short-term borrowing costs, has created a challenging environment. However, with a potential end to this inversion and a dovish Fed monetary policy on the horizon, a glint of hope emerges. As the tides shift, income seekers may find Annaly Capital Management and AGNC Investment to be glistening opportunities for the year ahead.

A couple seated on a couch who are examining bills and financial statements laid out on a table in front of them.

Image source: Getty Images.

Potential Impact of Core Inflation: A 2024 Dilemma

While the Federal Reserve’s forecast of three rate cuts in 2024 sparks enthusiasm among investors, the potential ramifications of this move cannot be overlooked. Recent history indicates that Fed rate cuts have been linked to economic slowdowns. With the U.S. economy exhibiting robust growth and an imminent reduction in rates, a resurgence in the rate of inflation looms. The core inflation rate, after experiencing a rapid uptick due to climbing mortgage rates, is unlikely to wane without a substantial impact on the U.S. economy. Thus, the year ahead may find investors grappling with persistent core inflation, posing a pivotal challenge.

Rethinking the AI Frenzy: The Downside of Hype

The fervor surrounding artificial intelligence (AI) has propelled the S&P 500 and Nasdaq Composite to great heights. However, as history often dictates, such exuberance often precedes a period of reckoning. Past investment trends, from the internet to blockchain technology, have experienced initial bubbles that waned over time. The vaunted AI sector, led by Nvidia, faces a similar juncture. The scarcity-induced surge in Nvidia’s pricing power, driven by GPU demand, may face headwinds as production expands and rivalry intensifies. This confluence of forces raises questions about the sustainability of Nvidia’s growth, hinting at a potential reckoning for the AI arena.

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The Changing Landscape of Tech Titans: Microsoft’s Ascent

Apple, for years the vanguard of tech prowess, now confronts stagnation as its physical product sales dwindle. In contrast, Microsoft’s trajectory appears steadfast, fueled by the success of its Azure cloud platform and the enduring profits from its legacy operations. This juxtaposition hints at a shifting of the guard as Microsoft’s ascendancy to the pinnacle of the market cap hierarchy becomes increasingly plausible. The winds of change blow strong, portending the potential emergence of a new titan in the tech domain.

Tesla’s Tumultuous Trajectory: An Uncertain Horizon

Lastly, the once-dazzling allure of Tesla, a paragon of the electric vehicle (EV) revolution, faces a somber prophecy. The phenomenon that once captivated the financial world now braves headwinds that threaten to erode its erstwhile dominion. The prospect of Tesla’s stock tumbling below $100 per share, painted against the maelstrom of EV competition, typifies the tumult that grips Wall Street’s most esteemed ventures. As fortunes oscillate and new contenders emerge, Tesla navigates a perilous course into the year ahead, teetering on the brink of a transformative juncture.

Caution Ahead: Tesla’s Stock Dives and 2024 Market Predictions

Tesla’s Stock Woes and 2024 Market Projections

The new year is upon us, and as investors brace for the unpredictable currents of the markets, a familiar specter looms over one of the most hotly debated stocks on the market – Tesla. Once the darling of Wall Street, Tesla (NASDAQ: TSLA) now faces dire predictions as analysts forecast its shares to plummet below the $100 threshold during 2024.

Tesla’s Troubles

Tesla’s pricing strategy, a key component of its recent tumult, sends out distress signals. CEO Elon Musk himself revealed during the company’s annual shareholder meeting that Tesla’s pricing approach is intricately linked to demand. The firm has repeatedly decreased prices across its Model 3, S, X, and Y vehicles in 2023, a telltale sign implying dwindling demand, mounting inventories, and intensifying competition. Tesla’s once enviable operating margin now looks alarmingly average in the auto industry.

Musk, renowned for his visionary pursuits, also embodies a tangible liability for Tesla’s stakeholders. His history of overpromising and failing to deliver on new innovations has sown seeds of doubt among investors. Although Tesla boasts a facade as an all-encompassing entity in the energy and auto sectors, the truth remains that the bulk of its revenue emanates from electric vehicle sales. This reliance on unsustainable income sources for a substantial portion of its profit casts a shadow on the company’s financial foundations.

2024 Market Forecasts

Looking beyond Tesla’s woes, 2024 appears poised to breathe new life into the embattled utilities sector. A sharp contrast to its dismal performance in 2023, forecasters anticipate that the utilities sector, lauded for its low volatility, high dividends, and steady operational performance, will reclaim its spot as one of the top three performing sectors. The anticipated ease in interest rates provides a glimmer of hope for utilities, with potential boosts in dividend yields and access to cheaper borrowing rates for expansion and growth projects on the cards.

As if these predictions weren’t enough, the market is on high alert for an unforeseen event that could momentarily rattle Wall Street. This annual tradition of an unexpected crisis wreaking havoc on equities has been a recurring feature in recent years. While the exact nature of this year’s crisis remains unknown, historical parallels such as the banking crisis of 2023 and geopolitical tensions in 2022 suggest tumultuous events sow seeds of uncertainty as we venture into 2024.

With 2024 unveiling its mysteries, only time will affirm or refute these forecasts, providing investors with an intriguing year ahead.

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