As the end of 2023 approaches, most fund managers and investment banks release their forecasts to predict what may happen in the markets for the new year that opens. The consensus has shifted to a more optimistic message, although some experts are even more extreme in their positives with the market that opens next January.
This is the case of RBC (Royal Bank of Canada), which has presented its forecasts for the next financial year. Estimates that are especially positive for North American equities. “While the November rally is likely to have curbed some of the 2024 gains, the US market will remain constructive going forward,” these analysts comment.
Their assessment and forecast work say they are sending optimistic signals, partially offset by the headwinds derived from the sluggishness of the economy and the uncertainty surrounding the 2024 presidential elections, to which both Joe Biden and Donald Trump have shown their support. intention to attend.
“Our work suggests that the greater attractiveness of bonds may end up being a buffer for the returns of the US equity market, but not necessarily a triggering factor for them,” they say. Hence, they believe that it is most likely that new rules of the game will be established in the first days of 2024.
In his view, the November rally, which has seen the S&P 500 rise more than 10% from its low on October 27, could have unbalanced some of the benefits expected for 2024, although RBC remains very constructive in the Short-term short-term index. “In fact, we set a target price of 5,000 points for the S&P 500 in 2024, which represents an increase of 10% compared to the close of last November 21,” the analysts predict.
This expected goal would come hand in hand with a quantitative approach to its target pricing process for the Wall Street Index: “Our target of 5,000 (in the base case) is the average of the different models we use, based “in sentiment, our valuation work and expected earnings, economics, politics and asset dynamics between stocks and bonds.”
According to this model, and focusing on different assumptions, the S&P 500 would close the year 2024 around 4,500 points in its worst case scenario, that is, the same as now. On the other hand, according to its most optimistic estimate, the index of the 500 main US stocks would end the next few years around 5,300 points, 17% above its current level, which would mean that the aggregate stock market value of the indicator would exceed the 40 billion dollars.
The improvement of feeling
RBC reveals that in its latest meetings with the investment team that the AII’s weekly survey on investor sentiment has been the best scientific star to guide the US equity market in 2023. “At the end of March, Optimism once again stood almost two standard deviations below the long-term average, immediately after the regional banking crisis,” the Canadian firm highlights.
Meanwhile, in mid-August, this indicator was a negative signal for the US equity market, when optimism briefly rose one degree above long-term averages and caused a shift from a bullish stance on Wall Street. . to a more prudent and tactical one in the short term.
“In early November, this indicator again gave a constructive signal to the US equity market, when it briefly fell to one standard deviation below the long-term average, but did not remain at these levels for long, as the The stock market staged a strong rebound from the minimum already established on October 27,” they say.
“In mid-November, this indicator was on the verge of recovering, but it did not indicate that the stock market had become overbought again… In the coming weeks and months, we will closely monitor this indicator, which moves quickly, but which now stands in a range practically followed by a 10.1% rise in the S&P500 in the next 12 months,” the Canadian firm predicts.
‘Higher for longer’ ratings
One of the factors that would have affected the US stock market the most, as RBC describes, would have been that valuations have fallen very short. So far, the period for equities after and before the 2008 financial crisis has been very different in many aspects, which is why they have preferred to observe valuation dynamics over longer time scales.
“We have taken the average of the estimated P/E curve for the fourth quarter against the S&P 500 and we have built a model that uses four variables: inflation, GDP, 10-year bond yields and interest rates; to predict where the fair valuation of the stock market should be in the years 2023 and 2024,” they analyze.
Rather than making rough estimates of where these variables will be at the end of the year, RBC uses consensus economic forecasts, as they believe these are what ultimately drive price action in the stock market. Current consensus estimates call for a P/E of 21 times S&P500 earnings in 2023 and 23 times in 2024.
“This means that the index could rise to around 4,700 by the end of 2023 if the provisions of $223 earnings per share for 2023 are met, and to less than 5,300 by the end of 2024 if the provisions of $232 earnings per share are met. per share by 2024,” RBC concludes its prediction.
THE NAIS IS OFFICIAL EDITOR ON NAIS NEWS