A $925 Billion Reason for Investors to Expect a Stock Rally in 2024

The S&P 500 has achieved yet another record high, marking its 20th such milestone this year, prompting analysts to adjust their price targets accordingly.

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Société Générale now anticipates the equity benchmark reaching 5,500 by the end of 2024, marking the highest projection among strategists.

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In a late Thursday note, Yardeni Research expressed confidence in a year-end target of 5,400, suggesting that achieving this milestone could set the stage for a target of 5,800 by the end of 2025. This optimism reflects the firm belief that the current bull market is resilient.

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Indeed, despite occasional concerns stemming from monetary policy fluctuations, worries about overvaluation, geopolitical tensions, or regulatory issues such as those impacting Apple's share price, there remains a steadfast demand for stocks.

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While additional supply can enter the market, as evidenced by this week's Reddit IPO, companies like FedEx are concurrently implementing significant buyback programs, with FedEx announcing a $5 billion buyback initiative on the same day.

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These buybacks serve to reduce the number of available shares for an expanding pool of investors. According to a team of analysts at Goldman Sachs led by Cormac Conners, this trend is accelerating.

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Goldman forecasts that buybacks of U.S. stocks will increase by 13% to $925 billion this year and surge by 16% to $1,075 billion by 2025. Since 2000, corporations have collectively repurchased a net $5.5 trillion of U.S. equities, a figure encompassing share buybacks, cash M&A activity, and equity issuance.

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In 2023, corporations were net buyers of $565 billion in U.S. equities, marking the strongest year since 2018. Goldman anticipates this measure will climb to $625 billion in 2024, driven by an 8% growth in earnings per share for the S&P 500. However, the bull market is also expected to foster a resurgence in IPOs and consequently increase equity issuance.

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Nonetheless, there are other sources of supply anticipated in 2024. Factors such as a strong U.S. dollar and concerns surrounding the Presidential election may lead foreign investors to sell a net $50 billion of U.S. shares, according to Goldman's projections.

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Additionally, pension funds shifting into bonds and mutual fund redemptions will contribute to selling pressures, with pension funds expected to sell a net $325 billion and mutual funds $300 billion of stocks. Despite these dynamics, Goldman observes a shift in another source of demand, as U.S. households transition from net sellers to net buyers of U.S. equities.

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The prospect of Federal Reserve easing alongside robust economic growth is expected to prompt households to reallocate funds from money markets into stocks. This shift is particularly significant given that U.S. money market assets under management owned by households currently stand at a record $3.8 trillion.

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While some may argue that households' already high allocations to stocks might limit additional equity buying, Goldman contends that historical evidence does not support this view.

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U.S. stock-index futures are showing slight gains as benchmark Treasury yields decline, while the dollar strengthens. Oil prices are rising, and gold is trading around $2,170 an ounce.

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In terms of news, no notable U.S. economic data is expected on Friday. However, various Federal Reserve officials are scheduled to speak, including Chair Jerome Powell, Vice Chair for Supervision Michael Barr, and Atlanta Fed President Raphael Bostic.

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Shares of FedEx are surging nearly 13% in premarket trading following an upward revision of its 2024 guidance. On the contrary, Lululemon Athletica stock is down 11% after offering conservative guidance despite exceeding analysts' revenue and earnings estimates.

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Tesla stock is down 3% amid reports of reduced production in China due to sluggish sales growth, while Nike shares are down almost 7%, weighing on peers such as Adidas and Puma, following a disappointing earnings call.

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Meanwhile, Japan's consumer prices excluding fresh food have risen 2.8% in the year to February, marking the 23rd consecutive month that inflation has met or exceeded the Bank of Japan's 2% target.

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In other news, KKR's $1.7 billion bike investment setback serves as a cautionary tale, while one CEO's radical approach to corporate challenges advocates for leadership purges. Additionally, the consequences of India's ban on TikTok are explored, prompting reflection on the ramifications of such actions.

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