After a strong start for stocks through 2023 and despite the threat of a recession, investment professionals see the S&P 500 index rising 8 percent over the next four quarters, according to the Bankrate First-Quarter Market Mavens survey. In fact, it is the tenth time in a row that the survey predicts an increase in the index in the next twelve months.
Survey respondents said they expect the S&P 500 to rise to 4,289 on average through the end of the first quarter of 2024. That’s an increase from 3,970.99 when the survey closed on March 24. These experts continued to favor U.S. stocks over international stocks, but in recent quarters they have shifted their preference from value stocks to growth stocks.
“Survey respondents are increasingly optimistic that a new stock market rally could begin or may already have begun in the coming months,” said Mark Hamrick, senior economic analyst at Bankrate. “For long-term investors, including those saving for retirement, a methodical approach requires less attention to short-term market performance and more focus on results further out over the time horizon.”
“The Federal Reserve has been raising rates for a year now, creating headwinds for the stock market,” Hamrick added. “Officials indicate they are close to the end of this tightening cycle. Although uncertainties regarding recession risks and inflation are still high, the economy has proven to be more resilient than expected in these first months of the year.”
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s Market Mavens survey for the first quarter of 2023:
- Pros expect the stock to rise 8 percent over the next year
- Survey: Experts expect the yield on ten-year government bonds to be below 4% next year
- Here are the pros’ top investing ideas and how to handle the Fed’s actions
Shares are expected to rise next year
After a rough 2023 that saw the S&P 500 enter bear market territory, stocks appear poised for a recovery over the next 12 months, say investment experts surveyed by Bankrate. After the recent turmoil caused by a number of high-profile bank failures and a slowing economy, it appears the Fed is about to end its streak of rate hikes.
Analysts expect the S&P 500 to rise 8 percent to 4,289 in the first quarter of 2024, up from 3,970.99 when the survey closed on March 24. That follows a year of optimism in 2023, when every quarterly survey predicted the market would be higher in the future. one year. In the Q4 2023 survey, analysts expected the market to rise 7.8 percent in the coming year.
But while the average forecast for the first quarter of 2024 is higher, analysts expect stocks could still experience a lot of volatility between now and then.
“We believe a recession will occur in the second half, and given the tendency of equity markets to bottom just before or around a recession, we believe a bottom or recovery in equity markets in the second half is most likely scenario,” says Sameer. Samana, senior global market strategist, Wells Fargo Investment Institute.
The expectation of a near-term recession was shared by other analysts, despite their optimism about the year ahead.
But as to when a bull market might begin, analysts were divided, with some even saying the bull market has already begun:
- 46 percent said a new bull market could start in the second half of this year.
- 23 percent say a new bull market has already started or will start in the first half of this year.
- 15 percent said a new bull market will start next year (2024).
- 8 percent say it could be sometime after 2024 when a new bull market begins.
- 8 percent made no comment.
“There have been 25 bear markets since 1890, all accompanied by recessions,” said Hugh Johnson, chief economist at Hugh Johnson Economics. “Bear markets ended and bull markets began during 23 of the 25 recessions. I expect a recession in the second and fourth quarters and an end to the bear market during that period.”
Many eyes are on how the Federal Reserve adjusts interest rates, as that signals a more benign monetary policy and an end to the highly restrictive policy that began in March 2023.
“As inflation returns to target and the Fed normalizes rates to its long-term target, strong domestic and global growth will create a robust backdrop for US equity outperformance,” said Dec Mullarkey, managing director of SLC Management. “The strength of the dollar should weaken, which is positive for sales growth abroad for U.S. companies.”
Experts less optimistic about stock returns in five years
Survey respondents were much less optimistic in their expectations for the market over the next five years, compared to their expectations in the fourth quarter survey. Nearly half of analysts surveyed said they expect lower-than-normal returns over the next five years:
- About 46 percent say returns will be lower than long-term returns.
- About 38 percent of respondents say returns over the next five years will be about the same as their historical average.
- About 15 percent say returns will be above historical averages.
The results showed a big shift from the fourth quarter to the first quarter. Many analysts have gone from expecting historically similar results in the previous study to lower-than-normal results in this study.
“Until we see better valuations, stocks are at best fairly valued,” says Samana. “Unfortunately, a recession in the second half will not be good for risky assets, which should mean lower-than-average returns over the next five years.”
Among those expecting lower future returns is Sam Stovall, chief investment strategist at CFRA Research. “Higher interest rates, oil prices and valuations are likely to hold back stock price growth,” he says.
On the other hand, Mullarkey expects higher-than-normal returns over the next five years and points to broader monetary reasons for his optimism.
“U.S. and global stocks will rise as economies return to a stable inflation regime and central banks return to their traditional role as guardians of stable monetary policy rather than leading the way in driving market conditions and sentiment,” says Mullarkey .
US stocks remain the place to be, say professionals
Experts continue to favor US stocks over their international counterparts over the next twelve months, as in the previous survey. Here’s how the numbers break down:
- About 69 percent of respondents favor US stocks in the coming year.
- Only 15 percent prefer international equities.
- Only 7 percent said returns would be about the same between the two.
In the fourth quarter survey, 71 percent indicated they preferred domestic stocks.
“The US legal and financial structure is positioning itself for growth,” said Kim Forrest, chief investment officer and founder of Bokeh Capital Partners.
“With the increasing risk of a recession, the safe haven (US) is likely to outperform,” Stovall said.
And Sameer Samana echoes that logic, saying, “We continue to believe the U.S. stock market is of higher quality and less economically sensitive than its global peers, allowing it to be a haven in the storm during a recession.”
Growth stocks are now preferred over value stocks
While these investment professionals maintained their preference for US stocks, they changed their preference for growth stocks and value stocks, viewing growth stocks as the better choice. Value stocks have fallen significantly, according to survey respondents’ estimates.
- About 46 percent of respondents prefer growth stocks over value stocks in the coming year.
- About 31 percent prefer value stocks that outperform growth.
- About 23 percent think returns will be about the same.
That was a significant drop for value stocks from last quarter, when a whopping 71 percent picked them to outperform growth stocks. Meanwhile, growth stocks won favor with 46 percent of professionals, compared to just 21 percent in the fourth-quarter survey.
“Value should perform better in a period of higher rates and energy prices, which we believe will continue for the remainder of the year,” Samana said.
But others see interest rate rises starting to peak, making growth stocks more attractive.
“Growth will dominate once inflation comes under control as the Fed holds down rates and considers rate cuts,” Mullarkey said. “A strengthening economy will provide opportunities for both revenue and multiple expansion. Technology will continue to lead.”
Others see opportunity regardless of whether value or growth leads the way.
Jim Osman, founder of The Edge Group, thinks that “any company that is undergoing business change and has hidden value” will continue to be attractive winners.
Methodology
Bankrate’s Q1 2023 survey of stock market professionals was conducted via an online survey from March 17 to 24. Survey requests were sent by email to potential respondents across the country, and responses were submitted voluntarily through a website. The responses included: Jim Osman, founder of The Edge Group; Louis Navellier, CIO, Navellier & Associates, Inc.; Dec Mullarkey, Managing Director, SLC Management; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Kenneth Chavis IV, CFP, senior investment manager, LourdMurray; Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management; Marilyn Cohen, CEO of Envision Capital; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Hugh Johnson, Chief Economist, Hugh Johnson Economics; Sam Stovall, chief investment strategist, CFRA Research; Chuck Carlson, CFA, CEO, Horizon Investment Services; Brad McMillan, head of investments, Commonwealth Financial Network; Clark A. Kendall, CFA, CFP, president and CEO, Kendall Capital.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
