As we close out 2023, stocks continue to inch higher. The traditional rally encompassing the last five days after Christmas into the first two days of the New Year is on track. Next week, trading should resume and with it a possible new high in the markets. 

 

Low volume, empty desks, and a focus on buying up the laggards of 2023 describe the week's trading action. Macroeconomic news was scarce. In that vacuum, stocks were at the mercy of proprietary traders and the ODTE speculators. The financial media kept investors busy by publishing a forest full of 2024 forecasts by brokers and money managers.

 

Overall, the 2024 S&P 500 Index targets range from 4,200 to 5,500. Given that over a long period, the S&P 500 has delivered around 10.13 percent yearly returns since 1957, and 9.19 percent over the last 150 years. As such, forecasts that mimic those returns should be ignored.

 

Those forecasts say to me that the authors have no idea where the market is going. As such, they have just taken the historical average gain as their forecast. Very few are bearish for 2024.

 

The current consensus is that the Fed will cut interest rates at least three times next year. Inflation is not coming back, and the U.S. will escape a recession. Interest rates will remain lower, but yields may bounce back up for a short time. The U.S. dollar will also continue to decline.

 

I am usually not one that agrees with consensus forecasts. I am also going to refrain from forecasting where the S&P 500 will end up 12 months from now. There are just too many factors that can change my outlook along the way. So instead, I will focus on the risks and rewards I see for the markets.

 

While I do think the markets will be higher than they are now by the end of next year, there will be some substantial pullbacks along the way. In January, for example, we could see a blow-off top that could see the S&P 500 index reach 4,900-5,000. That is the good news.

 

However, I am looking for a pullback after that. We could see a big bout of profit-taking beginning in the second half of January or early in February.

 

This consolidation should continue into April. Worries of slowing macroeconomic growth and falling employment will dampen investors' enthusiasm for stocks. This will be punctuated by doubts and uncertainty about whether the Fed will cut rates or simply continue to pause. In summary, the first half of 2024 will be volatile and trend to the downside.

 

There may be some areas that could withstand this malaise. I think that precious metals may be one of them. Europe may turn the economic corner providing some global growth. China could come back as well, in which case, materials might also do well. Overall, however, the first half is going to be bumpy.

 

In the second half, we face the 2024 elections. I expect the present administration, like every other administration, will pull out all the stops to goose the markets and the economy before the November elections.

 

Between the U.S. Treasury and the Federal Reserve Bank, I would expect to see a loosening of monetary policy and lower interest rates by April. This should ease financial conditions. If so, economic growth should rise, as will corporate profits and productivity. Inflation might remain sticky as a result but still trend downward below 3 percent, but still not reach the Fed's 2 percent target.

 

I do not expect another year of stellar performance by the Magnificent Seven. They will gain in price for sure, but I would expect the other 493 stocks of the S&P 500 to do better as will small-cap stocks, industrials, financials, and biotech.

 

That's it in a nutshell. I caution that my forecasts can change (and probably will) based on unforeseen circumstances. I wish you a wonderful 2024. Happy New Year.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.