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As November Comes to an End, Wall Street is in a Bullish Mood, and for Good Reason

November 30, 2023
minute read

As we conclude an extraordinary month, the S&P 500 has exhibited a remarkable surge, marking nearly a 9% increase, standing as its fourth-best month within the past 12 years. Notably, the rally has demonstrated a broad-based momentum, with the equal-weight S&P 500 showing an almost equivalent rise to the market-cap weighted counterpart. Simultaneously, the small-cap Russell 2000, previously trailing for the year as of November, has also experienced a substantial uptick of nearly 9% during this month.

A noteworthy development is the inclusion of four Wall Street strategists into the exclusive 5,000 club, signifying their anticipation that the S&P 500 will reach or surpass 5,000 by the close of 2024. The prevailing forecasts from these strategists convey a predominantly bullish outlook. Out of the ten major financial institutions surveyed, only two, namely Morgan Stanley and JP Morgan, project a decrease in the S&P 500 for the upcoming year.

The projections for the year-end S&P 500 estimates from various financial institutions are as follows:

  • Deutsche Bank: 5,100
  • BMO Capital Markets: 5,100
  • RBC Capital Markets: 5,000
  • Bank of America: 5,000
  • Barclays: 4,800
  • Goldman Sachs: 4,700
  • UBS Global Wealth Management: 4,700
  • Wells Fargo Securities: 4,625
  • Morgan Stanley: 4,500
  • JP Morgan: 4,200

Amidst this bullish sentiment, it is essential to acknowledge the factors contributing to the optimistic market conditions. Stocks have notably benefited from three influential tailwinds: a decline in interest rates, robust seasonal factors favoring November, and the historical strength of the fourth quarter before an election year. Furthermore, earnings have surpassed expectations, with estimates for 2024 showing a positive trajectory.

Recent economic indicators further support this optimistic outlook. Third-quarter GDP was revised upward to 5.2%, and the Atlanta Federal Reserve's GDP prediction anticipates a respectable 2.1% growth in the final quarter of the year. Inflation, a critical concern, has shown signs of abating, as evidenced by the readings on the Fed's preferred inflation gauge, the personal consumption expenditures prices for October.

Core PCE (excluding food and energy) aligned with expectations, with a month-over-month increase of 0.2% and a year-over-year increase of 3.5%. This signifies a decline from the 5.5% recorded in September 2022, underlining the ongoing reduction in inflation. October core PCE mirrored these trends, with stocks and bond yields remaining relatively stable.

The overall economic landscape paints a positive picture, with solid GDP growth, low unemployment, and declining inflation. It is, therefore, understandable why Wall Street maintains its bullish stance. Brian Belski, Chief Investment Strategist at BMO Capital Markets, reflects this sentiment by expressing enthusiasm about the stock market's potential heading into 2024, affirming the belief that the US stocks are in a bull market now entering its second year.

However, it is crucial to consider potential risks and dissenting opinions amidst this optimism. Scott Wren from Wells Fargo Institute points out that despite the recent 9% rally, the S&P 500 is merely 30 points away from a new high for the year, potentially encountering technical resistance in the new year. Wren also anticipates pricing difficulties for corporations in 2024 and raises the possibility of an impending recession, expressing a preference for bonds over stocks.

The lone bearish perspective comes from JP Morgan's head of U.S. equity and quantitative strategy, Dubravko Lakos-Bujas, who envisions a 2024 price target of 4,200, reflecting an 8% drop from the current price. Lakos-Bujas emphasizes the potential headwinds for corporate margins due to a recent disinflationary trend and concerns about pricing power turning negative or deflationary in certain industries.

From a more cautious standpoint, concerns about valuations arise, with analysts and strategists displaying overwhelming bullish sentiment. The anticipation of a 10% jump in S&P earnings for 2024 raises questions about the market's rich valuation, approaching nearly 19 times forward earnings, notably higher than the historic norm of 17 times.

This cautious perspective aligns with Lakos-Bujas's concerns, emphasizing that the current rebound typically occurs in early-cycle or intra-cycle recoveries, rather than when household savings are diminishing, borrow costs are reaching multi-decade highs, and global demand is cooling with price disinflation. As we reflect on the past month's market dynamics and anticipate the future, a nuanced approach considering both bullish and cautious viewpoints becomes imperative in navigating the complexities of the financial landscape.

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Eric Ng
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John Liu
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Cathy Hills
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