2024 Wall Street forecasts for the S&P 500

After a market recovery in 2023–the S&P 500 closed up an impressive 24%–you may be wondering what’s in store for the stock market this year. Let's look at what Wall Street professionals are predicting for the S&P 500 in 2024. Overall, the targets range from 4,200 to 5,500. To help give that some context, the S&P 500 closed at 4,769.83 on the last trading day of 2023. That would mean a change between -11.9% to +15.31% this year.

Obviously, anything can happen over the course of a year. New economic data and corporate events can influence Wall Street analysts to change their forecasts as the months go by. However, it's still good to get an idea of what analysts are forecasting at the beginning of the year and why.

Let’s learn about:

• The importance of investing for the long term

• 2024 forecasts for the S&P 500

• The main points influencing the 2024 market predictions

• Why the risk-free rate matters

The importance of investing for the long term

Since 1926, the S&P 500 has returned on average roughly 10% a year (Source: CNBC, 2023). So it’s not a surprise that many people believe that investing in the S&P 500 long term is a good move. 

Below is a great chart that shows the probability of making a positive return in the S&P 500 for different holding periods. The analysis shows that after one year of investing in the S&P 500, you have a 75% chance of making a positive return. After 20 years of investing in the S&P 500, that percentage chance increases to 100%. 

2024 Wall Street forecasts for the S&P 500 

The average Wall Street forecast calls for the S&P 500 to be at a level of 4,861 by the end of 2024. Based on where the S&P 500 is currently (~4,900 as of 1/31/24), the average prediction doesn't leave much upside unless analysts end up raising their forecasts throughout the year.

Let's take a look at what various Wall Street firms have to say about their market predictions for 2024. If you're positive about the stock market, consider the negative viewpoints and vice versa. Having a balanced perspective can help you make well informed asset allocation decisions. 

See: Investing 101: A Beginner's Guide To Building Wealth

Bearish (negative) 2024 S&P 500 forecasts

JPMorgan:  “With a step down in economic growth next year (US growth to slow to 0.7% YoY by 4Q24 from 2.8% 4Q23), eroding household excess savings and liquidity, and tightening credit, we see 2024 consensus hockey-stick EPS growth of 11% as unrealistic. Negative corporate sentiment should be a catalyst for sharply lower estimates early next year.” 

Morgan Stanley:  “Near-term uncertainty should give way to an earnings recovery. Our 2024 EPS estimate is consistent with output from our leading earnings models, which show a recovery in growth next year as well as our economists' expectations for growth next year. 2025 represents a strong earnings growth environment (+16%Y) as positive operating leverage and tech-driven productivity growth (artificial intelligence) lead to margin expansion.”

Plenty’s interpretation: JPM believes growth will slow down and households will spend more of their savings, and tap into credit options. Companies acting conservatively will lead to lower projected growth. MS believes there will be an earnings recovery that is caused by improved expectations of future growth in 2025 and beyond. Companies will improve operating efficiency and artificial intelligence will increase company productivity.

Neutral 2024 Wall Street S&P 500 forecasts

Societe Generale: 4,750, $230 EPS, “The S&P 500 should be in ‘buy-the-dip’ territory, as leading indicators for profits continue to improve. Yet, the journey to the end of the year should be far from smooth, as we expect a mild recession in the middle of the year, a credit market sell-off in 2Q and ongoing quantitative tightening.“

Barclays: 4,800, $233, “Whether ‘new normal’ or ‘old,’ a roller coaster 2023 proved that this cycle is anything but. We expect US equities to deliver single-digit returns next year as easing inflation is offset by modest economic deceleration.“

Plenty’s interpretation: Both expect a mild recession in 2024 that will create volatility in the market. Stock market upside is, therefore, limited. 

Bullish (positive) 2024 Wall Street S&P 500 forecasts

Bank of America: 5,000, $235 EPS, “The equity risk premium could fall further, especially ex-Tech: we are past maximum macro uncertainty. The market has absorbed significant geopolitical shocks already and the good news is we’re talking about the bad news. Macro signals are muddled, but idiosyncratic alpha increased this year. We’re bullish not because we expect the Fed to cut, but because of what the Fed has accomplished. Companies have adapted to higher rates and inflation.”

Goldman Sachs: 5,100, $237 EPS, “Our baseline assumption during the next year is the U.S. economy continues to expand at a modest pace and avoids a recession, earnings rise by 5%, and the valuation of the equity market equals 18x, close to the current P/E level. Our forecast falls slightly below the typical 8% return during presidential election years. Decelerating inflation and Fed easing will keep real yields low and support a P/E multiple greater than 19x. Upside risk exists to our above-consensus EPS estimate of 5% growth." 

Plenty’s interpretation: Both expect stock market performance will spread beyond the tech sector as the market is more comfortable with uncertainty. An election year is generally positive for the market and there is a chance for higher-than-expected earnings growth to drive stocks higher. 

Most bullish 2024 Wall Street S&P 500 forecasts

Yardeni Research: 5,400, "We’re “still targeting 5400 for the $SPX by the end of this year. .. Our main concern .. the S&P may be starting a tech-led melt-up similar to what happened during the .. 1990s.” Tech’s forward P/E “is currently 26.2. It rose near 50.0 in 2000, so it has room to soar.”

Capital Economics: 5,500, “Still time for the S&P 500 to party like it’s 1999. It has come a long way lately, thanks both to a rise in its valuation and to an increase in expectations for future earnings. This partly reflects investors’ enthusiasm about AI technology. If AI enthusiasm is inflating a bubble in the S&P 500, it’s one that is still in its early stages. We think the index could therefore make further gains: our end-2024 forecast is 5,500.“

Plenty’s interpretation: Both believe It’s back to good times with investors excited by technology, artificial intelligence, and productivity gains. As a result, there could be upward pricing momentum as investors chase growth stocks like they did in the late 1990s. 

Main points from the strategists

My oh my, is your head spinning a little? Clearly these strategists are quite experienced with the stock market to be able to make such detailed predictions. Just remember different opinions are normal and it also means that there's no such thing as 'timing the market'.

So how are Wall Street professionals coming up with their S&P 500 year-end target prices? Here are a few things they’ve factored in:

• Fed rates are expected to decrease (consensus is 3-6 cuts in 2024), leading to decreasing interest rates

• Fed rate cuts may start soon (potentially as soon as March)

• A recession seems less likely (most think it won’t happen at this rate)

• Earnings growth of public companies (many expect double digit earnings growth)

• Valuation multiples are increasing (a lot are guiding 18-20X)

• Uncertainty surrounding an election year (new leadership may be riskier)

• How much artificial intelligence could boost earnings and productivity (many predict strong productivity gains)

And why all the talk about Fed rates and interest rates? Lower interest rates tend to make risk assets more attractive. That simply means that people who have a lot of cash sitting in money market accounts and Treasury bonds may choose to move their money into higher-risk investments (like stocks) in hopes of earning more than they would have in low-risk accounts  when interest rates are dropping.

For example, let’s say you only made a 1% return in your money market fund. You may be more inclined to use that cash to invest in a stock that could generate a 8% - 10% return in one year, while also understanding that you could also lose money as well. 

Why the risk-free rate matters

Before investing in any risk assets, it's always a good idea to compare your expected return with the risk-free rate of return. The risk-free rate of return is usually the 10-year Treasury bond yield, which currently hovers at around 4.1%. Unless you believe the government will go out of business, you can assume a “guaranteed” return of 4.1%. 

In other words, if you want to invest in the S&P 500, ask yourself if you think the S&P 500 will gain more than 4.1% in twelve months. At current levels, that would put the S&P 500 at around 5,078.

If you don’t think that’s likely, then investing in a 10-year Treasury bond may suit your needs better than investing in the S&P 500. In other words, you can use the 10-year bond yield to calculate the opportunity cost for investing in risky assets. 

With growing confidence the Fed will eventually start cutting the Fed Funds rate by July 2024, there's a chance of mania in small caps, meme stocks, and startup valuations. There may also be a rotation out of the Magnificent 7 mega-cap tech stocks (AAPL, GOOGL, MSFT, AMZN, META, TSLA, NVDA) to the "lowest quality" names.

A return of FOMO investing during an election year may even push the S&P 500 toward the highest target prices of 5,400 - 5,500. We’ll just need to wait and see.

Downside risk to the S&P 500

On the downside, the S&P 500 could easily decline by 5% - 10% if the Fed delays cutting rates because inflation doesn't go down as much as expected. The year-end 2023 rally has brought forward a lot of gains and expectations. So it’s possible earnings may disappoint. 

Take a look at the chart below from Bank of America Research that shows how the S&P 500 return has historically declined after the first Fed cut. The idea behind this is that a recession overwhelms the positive benefits of lower interest rates. 

Given the Fed tends to be late in both hiking and cutting rates, the economy may already be in trouble by the time the Fed starts cutting rates. That said, this is the most anticipated recession in history. 

Positive Bias For 2024

Overall, it's unlikely we will experience another bear market like we did in 2022, when the S&P 500 closed down almost 20%. And although many predict that 2024 won’t be as strong as 2023, there’s a good chance it’ll be a positive year for stocks, real estate, and other risk assets. 

There is also the potential that investors may rotate their assets out of stocks into residential real estate due to the lag in price performance and pent-up demand. At the end of the day, investors are always hunting for the highest returns, no matter the asset class. 

If 2023 taught us anything, it's to stay invested for the long term. The longer you can stay invested, the greater your chances of making a positive return. 

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Past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only. The risk-free rate of return is the interest rate an investor can expect to earn on an investment that carries zero risk. In practice, the risk-free rate is commonly considered to be equal to the interest paid on a 10-year highly rated government Treasury note, generally the safest investment an investor can make. The risk-free rate is a theoretical number since technically all investments carry some form of risk. The S&P 500 Index (SPX) is a market-cap weighted index composed of the common stock of 500 leading companies in leading industries of the U.S. economy. It is often used as a common benchmark for US stock funds. The index is not a projection, prediction or guarantee of performance. Indices are unmanaged, are not available for direct investment.