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RBC Capital Markets has added to the optimistic projections for the stock market in 2024, forecasting that the S&P 500 will hit a new record high of 5,000 by the end of next year. The analysts at RBC attribute this bullish outlook to strong investor sentiment and buoyant equity valuations.
Despite the recent November rally, where the S&P 500 experienced a surge of over 10% since its October 27th low, RBC remains constructive on the index’s performance in the upcoming year. The 10% gain projected for 2024 aligns with the predictions of other Wall Street entities, including Bank of America and Federated Hermes.
RBC’s optimistic forecast is grounded in five models encompassing sentiment, valuation and earnings, economic factors, political considerations, and the interplay between stocks and bonds. The analysts emphasize sentiment as a crucial factor, describing it as “the best star in the sky to navigate the US equity market in 2023.”
Additionally, RBC highlights that equity valuations could stay elevated, surpassing current investor expectations. Their valuation model suggests that moderation in inflation can significantly contribute to supporting the Price/Earnings (P/E) multiple.
Addressing the bond market’s impact, RBC notes that even though bond yields have decreased since late October, the current levels are still higher than earlier in the year. However, these higher returns in the bond market are not seen as a deterrent for stocks, with historical data indicating solid stock market performance when earnings yield gaps are similar.
The potential source of uncertainty mentioned by RBC is the upcoming US presidential election in 2024. On average, during a presidential election year, the S&P 500 experiences around a 7.5% rise, below its usual growth. The analysts caution that the unique aspects of the 2024 contest add an element of uncertainty to the political backdrop for stocks in the coming year.
