The S&P 500 will rally to a record high next year, helped by positive sentiment and resilient valuations, according to Lori Calvasina at RBC Capital Markets, who joins a band of Wall Street strategists predicting further gains for US stocks in 2024.
“The sentiment set up is constructive for now,” Calvasina wrote in a note, saying that an indicator of investor appetite that’s proved reliable in 2023 is sitting in a range typically followed by 10% gains in the S&P 500 over 12 months. “Valuations can stay higher than many investors realize,” as cooling inflation should support price-to-earnings multiples, she wrote.
The strategist sees the US benchmark rallying to the 5,000 points level, the median of five different models her team uses that factor in sentiment, valuations, earnings, the economy, politics, and the cross-asset dynamic between stocks and bonds.
Calvasina joins Bank of America Corp.’s Savita Subramanian who also sees the S&P 500 closing the year 5,000 — 10% higher from Tuesday’s close — as companies have adapted to higher rates and weathered macroeconomic jolts. Other strategists are also optimistic, with Goldman Sachs Group Inc.’s David Kostin and Societe Generale SA’s Manish Kabra seeing the index flirting with a record high. Morgan Stanley’s Michael Wilson — a staunch Wall Street bear — has also turned more constructive in his view for the next year.
The S&P 500 has climbed 18% in 2023 after tumbling last year. Optimism about developments in artificial intelligence and hopes that the Federal Reserve would soon end its interest rate hiking cycle as the economy holds up better than expected have fueled the rally.
The RBC strategist said earnings will be good enough to justify another year of gains and the appeal of bonds won’t derail equity returns. She noted that the US presidential election will be a source of uncertainty next year, while the sluggish economy expected in 2024 through 2025 is the biggest headwind to stock market performance.
That said, Calvasina remains “constructive on the S&P 500 in the year ahead.” Her bull case would see the index rising to 5,300 — 17% higher than current levels.
Calvasina lifted her S&P 500 Index 2023 price target to 4,250 in May, citing a recovery in earnings sentiment and labor market resilience that underpinned hopes the US economy may avert a recession. The index closed at 4,538.19 on Tuesday
