The S&P 500 Index and the Outlook for 2024

According to Stifel’s chief equity strategist, Barry Bannister, the S&P 500 index is unlikely to make significant gains above its current level of 4,650 by mid-2024. Bannister predicts that “cyclical value” equities will surpass megacap growth stocks in performance.

Closing at its highest value since March 30, 2022, the S&P 500 is experiencing a period of growth. However, Bannister suggests that this trend may stall or only show minimal progress. As of the latest update, the index is trading modestly lower at around 4,563, according to FactSet data.

This year, stocks have seen a boost as inflation has eased. Many investors anticipate the Federal Reserve will start cutting interest rates in 2024. Nevertheless, Bannister anticipates that inflation may remain “sticky” in the first half of next year due to “better global economic growth.”

Bannister notes that the Fed is likely to maintain its current monetary policy during the first half of 2024. The central bank has already tightened its policy to tackle high inflation, elevating its benchmark rate to its highest level in 22 years.

By citing Stifel’s calculation of the “true permanent unemployment rate,” Bannister suggests that unemployment is expected to decrease by spring 2024. He emphasizes the need to remain watchful of Fed policy.

Bannister predicts a shift from megacap cyclical growth stocks to cyclical value stocks. This rotation could present challenges for the capitalization-weighted S&P 500, potentially limiting its ability to surpass the 4,650 mark by the end of June.

Bannister’s research highlights notable companies that fall under cyclical growth, including Google parent Alphabet Inc. (GOOGL), Facebook parent Meta Platforms Inc. (META), chip maker Nvidia Corp. (NVDA), Apple Inc. (AAPL), and electric-vehicle maker Tesla Inc. (TSLA).

Bannister’s Outlook on the Stock Market

According to Barry Bannister, various sectors are recognized as cyclical value areas in the stock market. These include banks, capital goods, energy, financial services, insurance, materials, real estate, and transportation. On the other hand, sectors such as media and entertainment, semiconductors, technology hardware and equipment, as well as autos and components, are seen as areas of cyclical growth.

Bannister’s 2023 Prediction

In January, Bannister made a call regarding the performance of the S&P 500. He anticipated a rally in the first half of 2023 followed by potential challenges in the second half. True to his prediction, the stock market experienced a surge in the initial seven months of the year. However, the S&P 500 faced three consecutive months of losses from October before rebounding in November.

Bannister explains that the S&P 500 had already reflected a COVID-impacted “pseudo-recession” in 2022. He believes that the index has been in recovery since October of that year and attributes the decline to a decrease in excess labor demand rather than unemployment.

As of midday trading on Monday, the S&P 500 has recorded a nearly 19% increase in 2023. Bannister’s forecast for mid-year 2024 suggests that the index may struggle to rise by more than 2% from its current levels.

Despite consecutive weeks of gains, the U.S. stock market experienced a decline on Monday. The Dow Jones Industrial Average (DJIA) was down by 0.3% at midday, while the S&P 500 (SPX) fell by 0.7%, and the technology-heavy Nasdaq Composite (COMP) dropped by 1.1%, according to FactSet data at last check.

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