If you’d like to hear more, here’s another five minutes. Now, let’s jump into the details.
: We are lifting Our YE:
As our regular readers are well aware, when it comes to our S&P 500 forecasts we are all about the math. As 1Q24 comes to an end, we’ve refreshed the five models we’ve been using to arrive at our YE 2024 price target. The median outcome of these five models is 5,291, which we round to 5,300 for an 11% gain vs. the December 2023 close. Our newly revised S&P 500 price target is a modest upgrade of the 5,150 forecast that we published in early January, which followed the 5,000 forecast that we published in November. We still see a range of forecasts in our models, from 5,075 to nearly 5,400, but it has tightened up and we are now seeing a bit more convergence in the models than we did before.
We consider our price target to be a signaling mechanism for our overall message on the potential direction of the US equity market from here. It’s a compass, not a GPS. The story we see in the data today is that the strong move observed in the S&P 500 so far this year has been deserved, and a rational case can be made for additional upside from here. But some of our work also suggests that gains may be tougher to come by from here and that the stock market needs a breather. Looking through to year-end, we feel a bit more neutral than we have over the last few months, but we also feel very far removed from the bearish camp. On balance, we see more upside than downside risks through year-end.
Moving on to Takeaway #2: The Most Constructive Signals Come from Our Economic, Valuation, and Cross-Asset Work, While Our Sentiment and Politics Work Are Less Enthusiastic
d from our January update. As:
the stock market is headed in:
x by the end of:
One of the other models in our tool kit that also paints a rosier picture for the US equity market in the balance of the year is our earnings yield gap model. There’s no real change here since our last price target update in January. It reminds us that when the forward earnings yield and 10-year yield are near parity, as has been the case recently, stocks still tend to post healthy gains of nearly 13% on a 12-month forward basis.
On a related note, there’s enough cash sitting in money market funds that it feels like there’s room for both stocks and bonds to benefit as cash moves off the sidelines.
unusual circumstances around:
Typically, the stock market tends to sell off early in a presidential election year before rebounding in the middle months. Trends turn choppy again as the election grows near, with a rally taking hold after election day once the uncertainty is resolved.
An early-year pullback clearly has not materialized yet, but we will be interested to see how the equity market reacts to early signs of potentially shifting dynamics in the race for the White House. Biden has started to gain on Trump in betting markets, but so far, the US equity market seems to be looking through this.
: We Have Lifted Our:
With all of the S&P 500 company results finally in for 4Q23 reporting season, we are also taking the opportunity to refresh our S&P 500 EPS forecast for 2024. As a reminder, our EPS forecast is based on an income statement for the S&P 500. We model revenue growth and interest expense (using consensus forecasts for key economic variables) and make assumptions on margins, buybacks, and tax. We think the market’s view of where economic fundamentals are heading, rather than any one economist’s or strategist’s view, is what ultimately drives stock market pricing.
forecast for:
That’s all for now. Thanks for listening. And be sure to reach out to your RBC representative with any questions.
