The U.S. stock market will probably keep rising next year as investors increasingly move out of cash to chase the rally, with the S&P 500 index now almost back to where it was in early 2022, according to Morgan Stanley’s Andrew Slimmon.
“We’ve gone nowhere for two years,” said Slimmon, a senior portfolio manager for U.S. equities at Morgan Stanley Investment Management, in a phone interview. “I think you’re going to see people more optimistic” as they consider they may be missing out on gains.
Slimmon, who told MarketWatch in late 2022 that the U.S. economy was not about to collapse under the weight of the Federal Reserve’s aggressive interest-rate hikes, is bullish on stocks in 2024. That’s even as he anticipates a potential correction in stocks before the end of next year.
While the Fed can cut its benchmark rate next year without a recession after taming inflation, “cynics” may create “some anxiety in stocks” on worries such a move by the central bank would be a sign that it “sees danger” in the economy, according to Slimmon.
“I’m in the camp that thinks the economy is in decent shape and the market ultimately will realize that they’re cutting because the inflation cycle is over, not because the economic cycle is over,” he said. Still, “I wouldn’t be surprised if we get some type of pullback when the Fed actually does begin to cut rates.”
In his view, “the market will be up again” in 2024, but “it won’t be nearly as good as this year.”
The U.S. stock market, as measured by the S&P 500, has soared in 2023. The index is up 24.2% this year through Tuesday, FactSet data show.
The S&P 500
SPX
rose 0.6% Tuesday to close at 4,768.37, or 0.6% from its record closing high on Jan. 3, 2022, according to Dow Jones Market Data. On Friday, the index notched a seventh straight week of gains, its longest such streak in six years.
Slimmon predicted in early October, as the S&P 500 was headed for a third straight month of losses, that equities would see a Big Tech-led rally in the fourth quarter. So far this quarter, the index has gained 11.2%, FactSet data show.
“In no way did I expect the pivot that we heard from Powell” during his news conference on Dec. 13 following the Fed’s policy meeting, said Slimmon. While he expected the Fed Chair to be “dovish” as a result of falling inflation, Slimmon said that he didn’t anticipate that Powell would “motion a pivot” toward cutting rates in 2024.
The Dow Jones Industrial Average
DJIA
logged its first record close of 2023 on Dec. 13 and has continued to rise to new peaks. The Dow notched its fifth straight record closing high on Tuesday.
Read: Fund managers most upbeat on stock market since January 2022 as S&P 500 nears record
Also see: Fed could be the Grinch who ‘stole’ cash earning 5%. What a Powell pivot means for investors.
“Magnificent Seven” in 2024
“Everyone thinks the market is going to broaden out next year,” after Big Tech stocks propelled the S&P 500’s gains in 2023, said Slimmon. Big Tech, also known as the ” Magnificent Seven,” may continue to rise in 2024, as these companies’ earnings have done “very well” and they’re going to “buy back a lot of stock next year.”
The group of seven stocks –– which includes Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Google parent Alphabet Inc.
GOOGL,
Amazon.com Inc.
AMZN,
Nvidia Corp.
NVDA,
Facebook parent Meta Platforms Inc.
META,
and Tesla Inc.
TSLA,
— represents a heavy weight in the S&P 500 index.
After the “Magnificent Seven” stocks’ massive 2023 gains, many investors anticipate the equal-weighted version of the index may outperform the S&P 500 in 2024, according to Slimmon. But he says “there’s a decent chance” these stocks will lead again next year.
Slimmon said that he still likes holding growth stocks as well as value equities in the financials and industrials sectors.
He expects the U.S. stock market will rally after the S&P 500 breaks above its record close seen in early January 2022, saying the index may end 2024 in the 5,000s. That’s after a potential correction in equities next year that may be sparked by “misguided” worries over the economy when the Fed decides to cut rates, according to Slimmon.
But “I’m pretty encouraged that the economy is hanging in there,” he said. “We’re seeing an earnings recovery after a flat year-over-year earnings.”
See: The VIX says stocks are ‘reliably in a bull market’ heading into 2024. Here’s how to read it.
