US stocks are likely to start 2024 with a breather and remain data-dependent until the start of the fourth-quarter earnings season, as an uptrend that saw double-digit growth for the three major indexes last year may run out of steam in early January. According to strategists at Oppenheimer Asset Management.
“Given the strong rally seen in US stocks from the lowest level since October 27, it should come as no surprise that traders and investors need to seize the opportunity to evaluate the move from the October low through last Friday,” said strategists led by John. Stoltzfus, chief investment strategist and managing director at Oppenheimer.
The stock market has seen notable upward momentum in the final months of 2023 amid growing optimism that the Federal Reserve may begin cutting interest rates as early as the first half of this year. The S&P 500 SPX jumped 11.2% in the fourth quarter, including a 4.4% advance in December alone, for an annual gain of 24.2%. This was also the best quarter for the benchmark large-cap index since the last three months of 2020, according to Dow Jones Market Data.
“It is not uncommon for markets to pause to absorb a bull run of the magnitude seen in the just-concluded fourth quarter,” Stoltzfus and his team wrote in a note to clients on Tuesday.
They also expect the stock market to remain “data-driven” until more market-moving catalysts arrive later this month, such as earnings reports, to reinforce the conviction that the S&P 500 is hovering just below the record it set nearly two years ago.
US companies are set to start reporting their fourth-quarter 2023 earnings at the end of next week, with the country's largest banks, including JPMorgan Chase,
bank of America PAC,
wells Fargo WFC,
First in the earnings calendar.
However, Stoltzfus doesn't see a potential pause in the stock's rise as something that would prevent the S&P 500 from achieving his team's price target of 5,200 by the end of 2024. That would mean a 9.7% advance from where the S&P 500 finished at 5,200. First trading day of the year, at around 4,742.
Strategists said “further rise” in share prices this year would be supported by “fundamental improvements” in the stock market. They remain heavily weighted in stocks, preferring cyclical sectors over defensive ones, according to the client note.
Oppenheimer also expects U.S. corporate revenues and profits to continue to grow over the course of 2024. They indicated in early December that they see earnings for S&P 500 companies reaching $240 per share and the index's price-to-earnings ratio expanding toward 21.7 times forward earnings for 2024. 12 months in 2024.
The S&P 500 is trading at 19.6 times forward earnings as of Tuesday, according to FactSet data.
See also: A stock investor's guide to the first trading days of 2024
US stocks ended mostly lower on Tuesday as Treasury yields rose BX:TMUBMUSD10Y.
The S&P 500 fell 0.6% to close at 4,742.83, while the Dow Jones Industrial Average (DJIA) rose less than 0.1% to 37,715.04, and the Nasdaq Composite fell 1.6% to settle at 14,765.94, according to FactSet data. .