• According to Tom Lee of Fundstrat, the outlook for the Wall Street stock market for 2024 is too pessimistic.
  • He pointed to the historical distribution of annual stock market returns.
  • Since 1900, the S&P 500 has seen annual returns of 10% or more 51% of the time.

The mood for the stock market in 2024 is too pessimistic, according to a Friday note from Fundstrat’s Tom Lee.

He highlighted the historical distribution of annual stock returns since 1900, which shows the stock market has gained 10% or more 51% of the time. This year is heading in that direction, with the S&P 500 index up 17%.

Yet Wall Street analysts’ forecasts for early 2024 suggest returns will be flat or low next year. However, according to Lee, this is not historically accurate.

Since 1900 (123 years), the annual return on equity has been broken down as follows:

  • S&P 500 from 0% to +5% – 11%
  • S&P 500 from -5% to +5% – 17%
  • S&P 500 above +10% – 51%

The S&P 500 is back


“What we are saying is that a stable S&P 500 level is the least likely outcome, with only a one in ten chance. However, these are the expectations of the selling side and investors. For me, that’s why 2024 will be a very defining year,” Lee said.

Early stock market forecasts for 2024 include Morgan Stanley’s S&P 500 price target of 4,500, representing a flat yield, and Goldman Sachs’ S&P 500 price target of 4,700, representing a potential upside of just 4%.

Meanwhile, Fundstrat’s own survey of more than 1,000 investors across its client base shows that 51% of respondents expect the S&P 500 to grow between 5% and 10% in 2024.

Stock market forecasts for 2024 suggest that there is still a lot of skepticism among investors, as evidenced by fund flow data. According to data from S&P Global, retail investors sold U.S. stocks in October at the fastest pace in 2021.

“To me, this really speaks to a surrender event that peaked on October 27 this year. We know that when investors capitulate, it gives stocks more room to grow, even if the incoming data doesn’t seem very favorable.” Lee explained.

“As for why investors are skeptical, I think it’s an end-of-cycle view: These skeptics believe the U.S. economy is late-cycle, so a recession is certain over the near-term investment horizon. And if you have that, then there’s not much that can stop it unless economic growth accelerates,” he added.

However, growth is starting to accelerate based on corporate earnings, and S&P 500 earnings per share in the third quarter rose 11% excluding the energy sector, the fastest pace of growth in two years.

For his part, Lee will release his 2024 forecast early next month. However, he is already optimistic about the final weeks of 2023, predicting that the S&P 500 will test record highs and rise 7% to 4,800 between now and the end of the year.



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