Key Point
- The communications services and technology sectors are driving gains.
- Analysts are optimistic about the second half of the year.
- Rising interest rates and slowing economic growth remain risks.
The S&P 500 hit an all-time high in the first half of 2024. It’s on track to have a second consecutive year of above-average annual gains.
S&P 500 companies are finding ways to offset rising costs and grow revenue. Still, investors face significant macroeconomic and geopolitical uncertainty heading into the second half of the year, with some experts urging investors to take a cautious approach to the market.
Stock Market Predictions for 2024
The technology and communication services sector led the rally this year. The breadth of the market gains is also impressive. Of the 11 market sectors, only two have generated negative returns in 2024. The worst performing sectors are real estate and consumer discretionary.
A strong start for the stock market historically bodes well for investors.
Since 1950, the S&P 500 has risen by 10% or more by the end of May 19 times. See the chart below for an example of this trend.
S&P 500 returns over 10% by end of May
Source: Carson Investment Research, FactSet, June 2024.
The index rose an average of 8.8% in the second half of those years, according to Carson Investment Research.
Of course, past performance is no guarantee of future earnings, but history seems to be favoring the company for the coming quarters.
“Market technical indicators suggest the S&P 500 could rise to 5,550 over the next few months, but a look at stock market fundamentals suggests the index may struggle to sustain its technical gains without improving support from interest rates and corporate earnings,” said John Lynch, chief investment officer at Comerica Wealth Management.
Federal Reserve Monetary Policy
The Federal Reserve’s progress in containing inflation has been inconsistent in the first half of 2024.
U.S. gross domestic product (GDP) growth slowed sharply in the first quarter, rekindling concerns that the U.S. economy could be heading toward stagflation or a mild recession.
Since July 2023, the Fed has maintained its highest target range for the federal funds rate since 2001. The current range is still between 5.25% and 5.5%. In June, the Federal Open Market Committee directed just one rate cut in 2024.
The timing of when the Fed shifts from raising rates to lowering them is crucial: if the Fed cuts rates too soon, it risks undoing progress made in fighting inflation; if it cuts rates too late, it risks tightening monetary policy and sending the economy into a tailspin.
Stock market outlook for 2024
US presidential election years have historically been tough for investors: Since 1952, the S&P 500 has averaged just a 7% annual gain during election years, according to LPL Research.
LPL predicts that the S&P 500 could rise as much as 12.2% this year. Incumbent administrations try to “stimulate” the economy in election years by implementing pro-growth policies and fiscal stimulus.
S&P 500 Forecast
Wall Street analysts expect S&P 500 companies to continue to overcome rising costs. Analysts estimate that second-quarter profits at S&P 500 companies rose 9.2% from a year ago, and they expect earnings to rise another 8.3% in the third quarter and 17.5% in the fourth quarter.
However, the S&P 500 has a P/E ratio of 20.3 for the next 12 months. The average P/E over the past 10 years is 17.8, suggesting stock valuations may be overvalued.
Most analysts are optimistic that the S&P 500 will continue to rise. The average analyst price target for the S&P 500 is 5,925.80.
DJIA Forecast
The Dow Jones Industrial Average underperformed in the first half of 2024.
Many investors are turning to growth stocks and riskier assets rather than quality stocks, a trend that could spell bad news for the Dow if it continues.
But if investors become concerned about macroeconomic or geopolitical uncertainty, they may turn to blue-chip stocks for safety.
Nasdaq forecast
As expected, the Nasdaq has outperformed the S&P 500 this year, and if everyone keeps buying growth stocks, the Nasdaq will continue to rise.
Artificial intelligence chipmaker Nvidia is the best-performing stock in the Nasdaq 100. The company has delivered impressive revenue growth and impressive profits this year. If the investment boom in AI technology slows, Nvidia and the Nasdaq could fall behind.
Are there any particular sectors you expect to outperform in 2024?
Growth stocks have performed well in 2024, especially in the communication services and technology sectors.
But analysts see the energy sector as the leader going forward, with analysts predicting an average increase of 17.8% for energy stocks and 16.4% for consumer discretionary stocks. Analysts are predicting the utilities sector to gain the least, at just 2.5%.
“Big Tech remains the most important market sector due to its sheer size and the expectation of continued revenue growth from AI,” said Richard Saperstein, chief investment officer at Treasury Partners. “Expectations for Big Tech’s AI capabilities are also boosting shares in other stock sectors, such as utilities, which have surged on the expectation of increased demand for electricity.”
Analysts recommend focusing on tech stocks.
How can investors prepare for 2025?
There is a lot of uncertainty and unanswered questions in the economy and markets.
There is a lot of uncertainty surrounding inflation, interest rates, economic growth and the 2024 election. With so much unclear, staying informed is the best way to prepare for 2025.
It is best to monitor economic data, pay attention to Federal Reserve comments, and track election results. Remember to stick to your long-term strategy. That said, you need to remain flexible to take advantage of changing conditions.
Frequently Asked Questions (FAQ)
Inflation, rising interest rates, and election uncertainty are the most significant risks in 2024. Therefore, to stay ahead of market volatility, it is important to keep an eye on US economic data and election results.
So far, the S&P 500 is expected to post above-average gains in 2024. The index has historically followed strong performance in the first half of the year with further gains in the second half.
Each individual’s portfolio strategy should be uniquely determined based on their investment time horizon, financial goals, and risk tolerance. For the remainder of the year, economists generally expect an environment of lower inflation, slower economic growth, and easier monetary policy.
