After a strong year in 2023, the US markets are taking things much more slowly in the new year. Experts see a number of headwind factors for Dow Jones & Co.
• US stock market in 2023 with new records
• 2024 burdened by numerous factors
• Headwinds from home and abroad
The largest US stock indices ended last year with a big gain: The blue chip index Dow Jones rose by almost 14 percent, the NASDAQ 100 rose by over 54 percent and the market-wide S&P 500 recorded an increase of 2023 more than 24 percent. The markets were driven by weakening inflation on the one hand and hopes of imminent interest rate cuts by the US Federal Reserve on the other. A possible relaxation of the monetary policy had even caused new all-time highs on the US markets.
Will the market run out of steam in 2024?
After the new year initially started as hopeful as the old one had ended, the US stock markets ran out of steam in the first few days of trading. Whether 2024 will be as successful as its predecessor remains to be seen, but one thing is certain: there are a number of headwinds for investors across the Atlantic.
A purely psychological effect could lead investors to get cold feet in view of the high price levels: “Anytime there is a big breakout like this, I think you are vulnerable to profit-taking,” says James St. Aubin, CEO Investment strategist at Sierra Investment Management, in an interview with MarketWatch. “It wouldn’t surprise anyone if the market cooled down a bit after a strong rise,” he continued.
This is also supported by the currently high valuation level of US stocks. Especially when compared to their European counterparts, US stocks are significantly more expensive, which has attracted more and more skeptics in recent months.
Rapid interest rate cuts have become less likely
The fact that one of the main drivers of the 2023 market rally, the hope that the US Federal Reserve will soon cut key interest rates, has recently lost its appeal is also likely to contribute to the subdued market mood. A look at the US stock market, which was unexpectedly strong in December, confirms this. “US employment is rising unexpectedly and wage growth remains strong,” dpa-AFX quoted Ralf Runde, an analyst at Landesbank Helaba. Therefore, interest rate cut expectations from the Fed are likely to be further dampened. So there are no reasons for the Fed to start easing interest rates quickly starting in the spring.
In addition, even if the monetary authorities deliver and loosen their monetary policy promptly, investors could also use this as an opportunity and make profits. Critics had already expressed concern at the end of 2023 that possible interest rate cuts had already been priced into the significantly increased share prices. “The markets are already believing the rumor that we will have a better year in 2024, that the Fed will cut interest rates and that the range will widen,” MarktetWatch quotes experts from Goldman Sachs. “Perhaps that is already priced in.”
Reporting season casts its shadows ahead
Investors are also becoming increasingly cautious with a view to the start of the reporting season. On Friday, major US banks will present their quarterly figures, signaling the start of an unpredictable season. After three quarters of declining profits, there was a countermovement in the third quarter, also due to the AI boom and the fact that the US economy has so far been able to avoid a recession that was predicted in many places. However, it remains unclear whether this trend will continue in the last quarter of the year and whether companies will be able to meet the high market expectations.
“The markets have been expecting earnings growth of 11.7% for some time. That is very optimistic,” the Goldman experts try to put the current hopes into perspective to MarketWatch.
Geopolitics remains a risk factor
In addition to highly valued stocks, dwindling hopes of interest rate cuts and an unclear development of the reporting season, there are still geopolitical factors in particular that could put a damper on the US markets in 2024. Because the sources of conflict from 2023 will remain hot in the new year: the war in Ukraine and the escalated Middle East conflict are likely to keep investors busy for quite some time. Added to this is the trade dispute between the USA and China, which is becoming increasingly heated and with no end in sight. Additionally, this is being fueled by the Taiwan conflict, which recently led China to sanction five US defense companies over arms sales. The Chinese government accused the USA of selling weapons to Taiwan.
Headwind factors also domestically
The US stock market is also facing headwinds at home: the presidential elections are coming up and it is still unclear who on the Republican side will be in the race against Democrat Joe Biden, who is expected to be re-elected. The primary elections are already casting their shadows; they begin on January 15th and last until the beginning of June. March 5th could be particularly crucial, as primaries take place in 15 states on that day.
In addition to this important political event, attention is also focused on the US national budget. There is a threat of another showdown over the debt ceiling in the USA. There is currently no sign of an agreement between the American Congress and President Biden. Although there was recently a compromise in Congress that was intended to prevent a budget freeze and thus a shutdown in January, the agreement on the level of spending in particular had brought hardliners among the Republicans into action, who were threatening to block the spending laws . Time is running out because the Republican-controlled House of Representatives and the Democratic-controlled Senate have to reach an agreement and pass details in a law by January 19th.
Bulls vs. bears in the US stock market
While pessimists among analysts and strategists are skeptical that the 2023 rally on the US stock market will continue in the new year given the abundance of headwind factors, other experts are much more confident. Ed Yardeni from Yardeni Research expects the S&P 500 to jump to 5,400 points by the end of 2024. He even believes 6,000 meters are possible at the end of 2025. Lori Calvasina, analyst at RBC, also sees the market in sustained rally mode in 2024.
Tom Lee from Fundstrat, the expert whose forecast for 2023 was closest to the real development of the stock markets, also agrees with this assessment. He estimates that the S&P 500 will end the year at 5,200 points. Lee also expects a positive profit development: He is confident that the S&P 500 will record earnings per share growth of eleven percent to $240 in 2024 and growth of eight percent to $260 in 2025. These forecasts are primarily attributed to a cyclical recovery in profits.
Editorial team finanzen.net