Last year, due to ongoing concerns about the US economy, Wall Street was gloomy about the outlook for US stocks, but unexpectedly, US stocks achieved a significant rise this year; At the end of this year, Wall Street's optimism towards the US stock market once again reached an absolute peak, which raises concerns: is Wall Street overly optimistic this time?
According to a survey of 518 respondents on Wall Street conducted by Markets Live Pulse (MLIV Pulse), most people on Wall Street expect the United States to avoid a recession next year and the S&P 500 index to reach a new high.
Most people expect the US stock market to hit a new high next year
A survey shows that the median expected target price for the S&P 500 index by the end of next year among 518 respondents is 4808 points, which means it will break the all-time high closing record of 4797 points set in January last year. Meanwhile, the 10-year US Treasury yield is expected to drop from this year's high of 5% to 3.8%.
More than two-thirds of the respondents are not worried about a hard landing in the United States next year, as the economic situation was once the top risk threatening the US stock market; Meanwhile, the vast majority of people expect the Federal Reserve to cut interest rates before July next year.
"American exceptionalism is still deeply ingrained," said Aneeka Gupta, head of macroeconomic research at WisdomTree. The main driving factor for the US stock market is that compared to Asia and Europe, the US economic background is more favorable, profit expectations are increasing, and the valuation of the S&P 500 index has also decreased.
The current optimistic atmosphere on Wall Street is in stark contrast to the widespread pessimism at the beginning of this year. Several investment banks, including Deutsche Bank and Royal Bank of Canada, are predicting that the S&P 500 index will hit a new high next year. Although there are also relatively pessimists like JPMorgan Chase who worry that the US stock market will fall next year, bears are clearly in the minority on Wall Street.
Still wary of potential risks
However, the median forecast for this survey -4808 points - is also worth careful consideration: although this point represents a historic high, it also means that the current level of the S&P 500 index (4604 points) is only a 4% increase - a much smaller increase than the average 19% increase of the S&P 500 in previous years.
This may mean that while Wall Street is generally optimistic, it also sees the existence of risks.
"We believe there is some tension between potential interest rate cuts and the stock market," said Richard Flax, Chief Investment Officer of European digital wealth management company Moneyfarm. "We currently lean towards a scenario where economic growth slows down and some companies' profits are lowered, which makes us relatively cautious about next year's stock market."
The rise of the "Seven Giants" may come to an end?
Goldman Sachs strategists suggest that the ideal approach at present is to maintain investment in stocks and avoid selling them during periods of volatility. The majority of MLIV respondents also plan to follow this suggestion, with 26% stating that they will increase their holdings in US stocks next month, which is higher than the average level of the survey.
43% of respondents stated that US stocks will continue to outperform global stock markets in 2024- and this expectation is not surprising from historical records, as the S&P 500 has outperformed global stock markets for 8 out of the past 10 years.
However, the trend of different sectors in the US stock market may change next year. In 2023, the trend of the S&P 500 index will be more dominated by the so-called "Big Seven" (NVIDIA, Apple, Tesla, Google, etc.), and many respondents plan to shift their attention from the "Big Seven" to small cap and value stocks next year in order to seek more returns.
"We believe that the upward trend of the seven giants will not last for a long time," M& Shanti Kelemen, Chief Investment Officer of G Wealth, said, "The valuations of other sectors in the US stock market are more attractive. As many companies in traditional industries gradually introduce AI, productivity is expected to increase."