The crazy year of 2023 in the US stock market is coming to an end, and as the S&P 500 index approaches its first historical high in nearly two years, investors are very optimistic about the prospects for 2024.
As the Federal Reserve suggests a possible end to interest rate hikes, the market is increasingly concerned about risks beyond monetary policy, such as economic prospects, corporate profits, and the November US presidential election.
Currently, a major challenge for investors will be to assess the lagged impact of the Federal Reserve's interest rate hike cycle, which has led Wall Street strategists to diverge on the direction of the stock market next year. Of course, many predicted catastrophic outcomes in 2023, but despite bank crashes, recession concerns, and decades of high borrowing costs, the S&P 500 index still jumped by over 24%.
The following are five key themes that investors need to pay attention to in 2024:
The timing of interest rate cuts
In recent months, more and more people have speculated that the Federal Reserve will start reducing borrowing costs before mid-2024, which has provided support for the stock market. The market is digesting the Federal Reserve's earlier and larger interest rate cut expectations, and futures traders are betting that the Federal Reserve will cut rates by about 150 basis points next year, which is twice what Federal Reserve officials predict.
The growth status of large technology companies
From Nvidia to Microsoft, the "tech giants" have contributed 64% of the S&P 500 index's growth so far this year, thanks to the outbreak of the artificial intelligence boom.
According to data compiled by the media, these companies are expected to increase their profits by 22% next year, which is twice the growth rate of the S&P 500 index. The key lies in whether these increases have already been reflected in the stock price, especially with increasing expectations of a "soft landing".
Fund management company Navellier& Louis Navellier from Associates stated that 6 out of these 7 stocks have good prospects before entering 2024. He wrote in a report that only Apple would be slightly inferior, without cutting-edge products or technologies to increase its profits.
US presidential election
From a historical perspective, the current presidential election year has been a bullish scenario for the US stock market. Data shows that since 1949, the S&P 500 index has seen an average increase of nearly 13% in election years. When there is no current president running, the index loses an average of 1.5% for the entire year.
Part of the reason for the stock market's rise is that the current government usually implements new policies or promotes tax cuts before the vote to boost the economy and market sentiment.
Asian risk
Driven by the Bank of Japan's ultra loose policy and the weak yen, the Nikkei 225 index climbed to a 30-year high in 2023, but the Japanese stock market will face obstacles in early 2024. It is understood that the Bank of Japan maintains the world's only negative interest rate policy, but two-thirds of economists predict that the bank will implement its first rate hike since 2007 before April.
In addition, India is a huge "bull market bright spot" as the country has won highly anticipated manufacturing contracts and increased infrastructure spending.
Policies of the European Central Bank and the Bank of England
As the Stoxx Europe 600 index approaches its highest level in two years, cyclical stocks that are heavily influenced by Asian markets may be the key to further gaining returns. Although a weak economy may affect corporate profits in Europe, analysts generally predict that profit growth in 2024 will be around 4%, mainly relying on increased profit margins.
The bond market expects the European Central Bank to cut interest rates before April, which may provide additional impetus for the region's stock markets, and expects the Bank of England to lag behind the Federal Reserve and the European Central Bank in easing, as the UK is one of the countries with the highest inflation rates among the G7.