Tom Lee’s forecast for 2023 was one of the few optimistic market predictions. Nevertheless, his outlook was closest to the actual development of the stock market last year. Lee is also confident about 2024.
• Tom Lee’s confident forecast for 2023 was the most accurate among many experts
• Lee expects further growth in 2024
• However, growth will not be a straight line
Most accurate stock market outlook for 2023
About a year ago, Fundstrat’s Tom Lee predicted that the S&P 500 would rise as much as 20 percent in 2023. While many other stock market experts were rather pessimistic about the future, according to Business Insider, it has now turned out that Lee’s outlook was closest to reality. At the time of his prediction, investors were still recovering from a strong bear market that had dominated almost all of 2022. At that time there were few signs of an impending strong recovery. But Tom Lee was optimistic: “The US economy is remarkably resilient given the Fed’s rapid rate hike cycle. The majority of stock investors expect an inevitable recession as the Fed keeps raising rates until something breaks. But if the above assessment [sinkende Inflation, Ende der Zinserhöhungen] is correct, a ‘soft landing’ would be the highest probability,” Lee said in his 2023 stock market outlook.
And that’s exactly how it should happen. The Fed ended its cycle of rate hikes due to falling inflation and the economy began to recover. Overall, the S&P 500 ultimately gained around 24 percent in 2023 and closed the stock market year with 4,769.83 points. “Reaching an all-time high is a significant market milestone, and the stock price does not suddenly reverse from there,” explains Lee in an FS Insight post.
Forecast for 2024
Lee also expects solid growth for 2024. He estimates that the S&P 500 will end the year at 5,200 points. This corresponds to a growth potential of around nine percent. According to Business Insider, according to his outlook for 2024 published at the end of 2023, he believes that the easing of financial conditions over the course of the year will be the key driver for further gains in the stock markets.
The Federal Reserve recently indicated that the next interest rate decision would be a cut rather than an increase. The market is currently expecting at least five interest rate cuts of 25 basis points each in the coming year. A decline in interest rates from their current peak is likely to lead to lower mortgage rates, which in turn could stimulate the housing market. At the same time, a sustained decline in inflation could lead to looser financing conditions, leading to an increase in consumers’ real incomes and thus strengthening their purchasing power.
Lee expects the S&P 500 to see earnings per share growth of 11 percent to $240 in 2024 and 8 percent growth to $260 in 2025. These forecasts are primarily attributed to a cyclical recovery in profits. He stressed, according to Business Insider, that although corporate capital spending has declined in recent years, easing financial conditions are leading to a recovery in capital spending. Lee also added that GDP growth in Europe and Asia is expected to pick up again, which should help stimulate the global economy. Furthermore, a weaker US dollar and increased productivity are expected to have a positive impact on corporate profits in 2024.
Lee’s favorite for 2024 are small-cap stocks, which, in his opinion, could catch up with the broader market in 2024 and rise by more than 50 percent. He also prefers stocks from the financials, industrials and technology sectors.
The hook
But there is also a catch in his optimistic outlook for 2024, as he explains in the FS Insight article. According to his forecast, growth will not be linear. For the first few months of the year, the market could be in for a sell-off: “In the current context, we could see the S&P 500 at 4,400 to 4,500 once we reach all-time highs, or see a slight decline. This is in line with our outlook for the year 2024, where we expect the S&P 500 to generate most of its gains in the second half of 2024,” said Lee. Fundstart’s co-founder and Head of Research also gives a few reasons for this: “The markets could be in anticipation of a Interest rate cut by the Fed, while the Fed itself hesitates. The AI timeline could be pushed back by a “systematic hack” by malicious AI. Stock markets will need to consolidate the parabolic gains seen at the end of 2023.”
Additionally, Lee noted that “a February/March downturn would be consistent with election year seasonal returns. Historically, we see a pronounced downturn around the February/March period, although it is not entirely clear why this occurs.”
It remains to be seen whether Lee’s predictions will come true this year.
Editorial team finanzen.net
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