Long-time readers will know that I’ve had a bullish 2024 outlook on the stock market for a while. But now it suddenly seems like everyone thinks stocks will rally this year.
The Bank of Montreal thinks stocks will rise about 10% this year. Fundstrat anticipates stocks climbing about 10%, too, while Capital Economics sees stocks rising 20%. Bank of America, Yardeni Research, Royal Bank of Canada, Deutsche Bank, Goldman Sachs, Barclays, and Societe Generale also all have a bullish outlook for stocks in 2024.
That actually worries me.
I’ve found that in stock market analysis, when everyone agrees on something, the opposite tends to happen.
Just consider 2023. Pretty much all the banks mentioned above thought stocks would fall last year. Instead, the market rallied 25%.
That dissonance is why I was very confident in our call that stocks would rally 25% in 2023. And we were proven correct. We said stocks would rally. Everyone else said they would fall. And we were right.
But this year, strangely enough, I find myself in the consensus.
And my confidence in that claim isn’t rooted in consensus.
Rather, I let the data inform me. And all the evidence suggests a rally is coming this year.
The Stock Market Is Tee’d Up to Rally
The economy is braced for a soft landing this year, wherein inflation drops and the Federal Reserve cuts rates while economic activity stays positive.
That seems clear as day now.
The headline inflation rate has dropped to 3%. Excluding housing costs, inflation is running at 1.4%. That’s below both “normal” levels and the Fed’s target, about 2%. So, right now, the only thing keeping inflation slightly elevated is housing costs. And we’re already starting to see rents falling and home prices getting cut. The last “sticky” party of inflation is on its way out. As it leaves in 2024, inflation will firmly fall back to 2%.
Concurrently, the Fed has voiced support for cutting interest rates in 2024 if inflation does indeed firmly fall back to 2%. The market is now pricing in nearly 100% odds that the central bank will cut rates multiple times throughout 2024.
So – inflation and interest rates are going lower in 2024.
Against this backdrop, the economy should avoid a recession. According to the New York Fed’s Weekly Economic Index – the most dynamic and accurate read of real-time U.S. economic activity – the U.S. economy is currently growing at a 2.9% real pace. Not only is that the economy’s best real growth rate since summer 2022, but it is also way above the economy’s average growth rate throughout the 2010s (about 2.2%).
In other words, the economy is doing just fine right now. And as inflation and interest rates move lower in 2024, it will only strengthen.
That bodes exceptionally well for the stock market.
The Final Word
All in all, the data strongly suggests that the U.S. economy is positioned for a soft landing in 2024. And historically speaking, every time that the U.S. economy has pulled off a soft landing, stocks have rallied.
The evidence is indisputable.
Perhaps that’s why stocks soared into the end of 2023.
In November and December of this past year, the S&P 500 rallied about 15% – one of its sharpest year-end rallies of all time. In fact, since 1950, the stock market has only risen more than 10% in November and December six times before.
And all six times, stocks rallied the following year, with average returns of about 20%.
If I learned anything from investing over the past decade, it’s that you have to learn to respect what the market is telling you.
And right now, the market is telling us that stocks are going to soar in 2024.
That’s a message you shouldn’t ignore.
