RBC Capital’s Lori Calvasina recently raised her 2024 price target for the S&P 500 from 5,000 to 5,150. However, this change in predictions is accompanied by a more cautious view compared to his team’s position in November 2023.
In his statement, Calvasina noted: “When we introduced our target of 5,000 in mid-November, it represented a gain of approximately 10% from the levels in place at the time. Today, our price target of 5,150 represents a gain of 8% from the index close in December 2023, so it’s fair to say that our enthusiasm has actually diminished a bit.”
On Monday, the S&P 500 closed at 4,764. The company’s “higher but lower” outlook revolves around market sentiment and investor reactions to the Federal Reserve’s tone and forecasts in December.
The central bank’s projections of more aggressive interest rate cuts in 2024 triggered a rally in several asset classes, pushing the 10-year Treasury yield below 4% and driving the Dow Jones Industrial Average to a record high.
However, the stock market faced a rough start to 2024, marking its worst start to the year since 2016. Some Wall Street analysts attribute this to a “hangover” from a strong 2023, where the S&P 500 rose more than 20% and the Nasdaq rose more than 40%.
Referring to the American Association of Individual Investors’ sentiment survey, RBC notes a recent increase in bullish sentiment, indicating a potentially flat market over the next three months and gains of approximately 6% over the next 12 months. As of mid-November, this measure suggested a more optimistic outlook, with an expected increase of around 10% over the next year.
Despite the indicator’s rapid swings, this analysis sheds light on a crucial question facing investors: Are markets anticipating, reacting to, or influencing the Federal Reserve’s decisions?
In a simplified sense, lower interest rates tend to favor stocks. The prevailing belief is that the market’s bullish move primarily anticipates lower interest rates in 2024. According to this line of thinking, the Federal Reserve’s December outlook reinforced investors’ confidence that its bet on lower rates was correct.
The classic market adage, “buy the rumor and sell the news,” helps explain the modest pullback seen from the December highs. Once the Federal Reserve confirmed the rate cuts, the driving force behind this trade diminished.
Also read: S&P 500 and Nasdaq react to economic data, shaping rate cut expectations