S&P 500 to reach record high of 5,000 in 2024, BofA predicts

Central banks around the world will start to ease back on interest rates and inflation will continue at a slower pace, but what are the other key themes are likely in 2024?

Bank of America economists and strategists have made their predictions for the year ahead, with a mixture of highs and lows, and a general overview that rates and prices will ease, with rate cuts in multiple economies expected by mid-year which will also avoid a global recession.

Among the highs are U.S. equities, which will reflect the lower rates but also what the Fed has already done and how corporates have reacted and adapted. A bullish forecast from Savita Subramanian, head of U.S. equity and quantitative strategy, calls for the S&P 500 to reach an all-time high of 5,000 by year-end. “EPS can and has accelerated as GDP slows, and reshoring has been identified as a tailwind by companies,” Subramanian states.

Well-known equities bear Michael Hartnett is less enthusiastic and says that the risk for a hard landing for the economy is higher than expectedn and that he awaits the classic combination of bearish investor positioning, recessionary corporate profits, and easing policy— “the 3Ps”—before he flips to a bullish position. That said, Hartnett is already bullish on “the 3Bs” of bonds, bullion and breadth.

The outlook suggests that 10-year Treasury yields will remain elevated in 2024, although Mark Cabana, the bank's U.S. rates strategist, is breaking with consensus with a bearish tone on 10-year bond prices. “The U.S. fiscal stance has deteriorated, as has its net international investment position, and duration/inflation risk have become riskier,” he warns.

OTHER 2024 THEMES

Among other themes ahead for next year, BofA’s experts see potential for policy uncertainty due to elections affecting countries with 60% of global GDP.

International oil benchmark Brent Crude is expected to hover around $90 per barrel with more cuts by OPEC+ likely, while global demand will reach 1.1 million barrels per day. Prices will be constrained though by faster U.S. shale production, potential recession, and lack of OPEC+ cohesion. WTI is expected to average $86.

China and Japan are both expected to see better economic conditions in 2024 and emerging markets should benefit from a peaking greenback and lower Fed rates.

U.S. growth may be weakened by slowing investment.

Finally, the bank’s credit experts expect credit to be challenged by rates, earnings, and issuance. They prefer quality in 2024 and believe investment-grade offers the best relative value in credit. Loans offer more carry than high yield and, high-yield credit losses are unlikely to be lower than loans.