New York - December 10, 2023 ~ The team at Infrastructure Capital Advisors has completed our 2024 outlook and forecast with recap of 2023. This insight report covers the overall economy, the stock markets and the bond markets.
1. Review of 2023 Outlook: Published Dec. 2022
In our December 2023 Market & Economic Outlook Report (click here to go to report), our consensus 2023 target for S&P 500 of 4,500 looks like it will be conservative as the AI boom boosts the averages into year-end, although the December Fed meeting may derail the rally.
2023 Stock Market Outlook Summary:
We believe that the stock and bond markets have found a bottom and 2023 will be a strong year for stocks and bonds with gains of more than 10% as inflation declines rapidly in the first 6 months of the year and bond yields also decline. Our 2023 year-end price target for the S&P is 4,500 representing 18.5x 2024 EPS estimate of $245.
There will be ongoing headwinds from misguided Fed policy and sluggish growth, which is likely to make the market volatile for the first 6 months of the year. The Fed is likely to pause rate increases after the May meeting, which is likely to be a huge catalyst for both the stock and bond markets. We forecast core PCE Y/Y will decline below 3% in June.
2. 2024 Market and Economic Outlook & Forecast:
A. Stock Market Outlook & Forecast:
We are bullish on the market for 2024 and have established our target on the S&P of 5,150 based on 19x the 2025 EPS consensus estimate of $270. We believe that central banks will ease in 2024, led by the ECB as Europe has already entered a recession. We project that lower long-term interest rates, a resilient US economy, and the ongoing AI boom will drive the S&P to our target by year-end 2024.
Many forecasters are too bearish about the consensus implied earnings growth rate of 10% as they fail to recognize that all aggregate earnings growth comes from the reinvestment of retained earnings and depreciation and is not driven by margin expansion or dependent on high GDP growth.
We expect the US economy to be resilient in 2024 with the shortage of homes in the US causing the housing sector to hold up. Housing crashes are almost always the key driver of recessions.
We believe it is a good time to allocate to preferred stocks and large-cap dividend stocks as yield stocks are well below fair value due to rising rates and a volatile stock market in 2023. These asset classes are likely to outperform in 2024 on a risk-adjusted basis as global interest rates decline.
B. Bond Market Outlook & Forecast:
2024 to be the Year of Global Rate Cuts. The futures market in all major economies implies an unprecedented number of rate cuts. We forecast that the global bond market will rally significantly which will drive US rates into the 3-3.5% range by year-end.
ECB implied rate cuts are currently 5 (130BP)
Euro Zone GDP Now implies a 2% recession in Q2
Recent CPI data in the Euro Zone has cooled with November CPI coming in at negative .5% driving year-over-year headline inflation to only 2.4%.
Every OECD country except Japan is projected to cut rates with the average cut well over 1%.
The US has 4 rate cuts priced in which could be a disappointment to the market as our fundamentally flawed Fed continues to cling to the discredited Phillips Curve theory of inflation causing it to be reluctant to cut unless unemployment is rising significantly. We believe that the global rate cuts will still drive US interest rates lower and provide cover to the Fed to cut rates eventually as the dollar is likely to be very strong which is highly deflationary.