After a Rip-Roaring 2023, the Markets Are Taking a Breather (2024)

FAQs

After a Rip-Roaring 2023, the Markets Are Taking a Breather? ›

The stock market's long-term path has been persistently upward, our columnist says, but there have been plenty of setbacks and it's wise to prepare for more. Jeff Sommer writes Strategies, a weekly column on markets, finance and the economy.

Instead, earnings may drip down slowly throughout 2023, frustrating market bears. Interest rates on long-term bonds have fallen lower than those of short-term bonds, creating an inverted yield curve that usually portends an upcoming economic slowdown.

Wall Street analysts' consensus estimates predict 3.6% earnings growth and 3.5% revenue growth for S&P 500 companies in the first quarter. Analysts project full-year S&P 500 earnings growth of 11.0% in 2024, but analysts are more optimistic about some market sectors than others.

Investors have plenty to cheer as 2023 draws to a close, with the S&P 500 ending the year with a gain of more than 24% and the Dow finishing near a record high. Easing inflation, a resilient economy and the prospect of lower interest rates buoyed investors, particularly in the last two months of the year.

Global shares

Trading was volatile, though – with share prices going up through the first half of 2023, before sliding from August until October. But then an “everything rally” began in November, as falling inflation spurred hopes of interest rate cuts on both side of the Atlantic.

Good Tidings. Let's review the good times of late 2023. The S&P 500, which tracks the most valuable stocks in the U.S. market, rose 11.2 percent in the last quarter — and had a total return of 11.7 percent, including dividends. For the year, it gained 24.2 percent and returned 26.3 percent, including dividends.

Key Takeaways:

The 100-minus-your-age long-term savings rule is designed to guard against investment risk in retirement. If you're 60, you should only have 40% of your retirement portfolio in stocks, with the rest in bonds, money market accounts and cash.

There are signs that a rebound in IPO volume is in the cards for this year, with interest rates peaking and stock markets around the world rallying during the early months of 2024.

U.S. stock returns: 2023 optimism carries forward

This heightened optimism is on par with the positive outlook in December 2021, when investors anticipated a 6% stock market return for 2022. Investor expectations for stock returns over the long run (defined as the next 10 years) rose slightly to 7.2%.

Meanwhile, the median streak of positive returns can extend to 17 months with a gain of 14%, based on historical data. That suggests the S&P 500 could trade to 6,000 by August 2025, and to as high as 6,150 by November 2025.

What is the safest investment with the highest return? ›

Consider if an investor put their money in the S&P 500. Historically, it has averaged 11.5% returns between 1928 and 2022. In 6.4 years, their money would double, assuming these average returns.

Stocks move up and down frequently. Between November 2023 and early March 2024, the stock market moved higher (following a generally downward trend between August and October 2023). The market's recent strength seems to reflect, in part, expectations of a major change in Federal Reserve (Fed) monetary policy.

The Stock Market Is Overvalued

"From a common-sense viewpoint, the equity markets came very far, very fast in 2023 and early 2024," says Hugh Johnson, chairman emeritus of Graypoint LLC in Albany, New York.

But stock prices soared in 1995--arguably, the best year in history. A number of major money managers made switches out of equities into government bonds in early 1996--fearing high stock prices and a market sell off. But 1996 was again a strong year for most of the market.

By all accounts, 2023 was a prosperous year for investors. The S&P 500 posted a gain of 24.33% for the year. But that performance followed a tumultuous 2022, in which the market lost 19.44%. If you balance out the two years, you'd have about broken even.