Can the US stock market continue to rise in 2024? Goldman Sachs is "confident" that it will increase by at least 7%, while JPMorgan Chase "smirks" and predicts a decline of at least 10%.

Perhaps most investment banks did not expect the US stock market to thrive in the "fire" of interest rate hikes in 2023, as we approach the end of 2022. As of the close on December 22nd, the S&P 500 index and the Nasdaq 100 index have risen more than 24% and 54% respectively this year.

Data shows that the rise of the S&P 500 this year is mainly driven by the "Big Seven" tech stocks - Apple, Microsoft, Alphabet-C, Amazon, Meta, as well as the newly added NVIDIA and Tesla. Excluding the "Big Seven," nearly one-third of the S&P 500 constituent stocks have still declined this year. At the same time, 72% of the S&P 500 constituent stocks have underperformed the index, reaching the highest level since 2000.

The resilient US economy, moderate inflation, and possibly peaking interest rates in 2023 are driving investors to overcome concerns about a recession.

So, can the US economy achieve a "soft landing" in 2024? How will the US presidential election affect the US stock market? Will the US stock market reverse its upward trend in 2024?

To answer these questions, Wall Street News has compiled the latest predictions from the top ten investment banks on the US stock market and the US economy in 2024, analyzing the trends from three perspectives: bearish, neutral, and bullish.

Among them, JPMorgan Chase is in the bearish camp, while Morgan Stanley, Wells Fargo, and Barclays are in the neutral camp. The bullish camp includes Bank of America, Goldman Sachs, Royal Bank of Canada (RBC), HSBC, Citigroup, and Deutsche Bank.

Bearish - JPMorgan Chase: S&P 500 index target of 4,200 points in 2024

Marko Kolanovic, Chief Market Strategist at JPMorgan Chase, remains bearish and predicts in the latest research report that the S&P 500 index will have a target of 4,200 points in 2024, with earnings per share of $225.

Kolanovic believes that the US economic growth will gradually slow down next year (by the fourth quarter of 2024, the US economic growth rate will decrease from 2.8% in the fourth quarter of 2023 to 0.7%). It seems unlikely that the Federal Reserve will quickly cut interest rates. In 2024, investors should prefer cash over stocks:

Investors are overly confident that a recession will be avoided in 2024. Combined with the fact that stocks are overvalued and highly volatile, now is not the time to buy stocks in large quantities.In his report, Kolanovic pointed out that the impact of high interest rates on the economy over the past 18 months has a lag effect and will have a negative impact on economic activity in 2024. Excess savings of residents are being depleted and consumption growth is expected to slow down:

Consumption will further slow down, geopolitical conflicts persist, and the upside potential for stocks is limited. We remain cautious about stocks and the macro outlook for the United States.

The headwinds of monetary policy and reduced fiscal stimulus should lead to a slower-than-expected economic growth in 2024.

At the same time, Kolanovic does not believe that the Federal Reserve will significantly cut interest rates in 2024. Inflation remains stubborn and it is difficult to reduce it from the current 3% to the Fed's target level of 2%. He stated that only a soft labor market can bring inflation back to 2%, which means that the magnitude of the Fed's interest rate cut in 2024 may be lower than expected.

In light of these factors, Morgan Stanley believes that the consensus of a significant increase in earnings per share in 2024 is unrealistic, and the pessimistic sentiment of companies should be a catalyst for a significant downward revision of expectations early next year.

Neutral Parties - Morgan Stanley, Fuguo Bank, UBS, and Barclays

Prominent Wall Street bear Mike Wilson and other Morgan Stanley strategists predict that the S&P 500 index will reach 4,500 points in 2024, with earnings per share at $229, and companies will experience a recovery in annual profits.

Wilson bluntly stated in the report that the Federal Reserve's policy shift is "good news for the stock market," which means that the Fed is starting to pay more attention to economic growth rather than worrying about whether the decline in inflation can be sustained. This increases the possibility of a soft landing, which will drive small-cap stocks and other sectors that have underperformed the broader market this year to catch up.

If inflation stabilizes at a higher level, small-cap stocks/cyclical stocks/low-quality stocks may benefit. Of course, this is a delicate balance when inflation statistics are still above the target. If these data start to rebound, the Fed may reverse its direction.

If the US economy experiences a soft landing without reigniting inflation, small-cap stocks, which are more sensitive to changes in interest rates and economic prospects, may continue to rise after a significant rebound in November.

Morgan Stanley analysts believe that with the decrease in labor costs, earnings per share (EPS) of S&P 500 constituents will increase by 7% next year, revenue will grow by 4-5%, and profit margins will grow "moderately." The expected price-to-earnings ratio at the end of next year is 17 times.

Analysts at Fuguo Bank expect the year-end target for the S&P 500 index to be 4,625 points, with earnings per share at $235. With low volatility index, tightening credit spreads, stock market rebound, and rising cost of capital, it is time for the US stock market to slow down. It is expected that the S&P 500 index will experience volatility in 2024, almost flat compared to the end of this year. The high valuation limits the upside potential, while the uncertainty of interest rates increases the downside risk.Barclays stock strategist Venu Krishna and his team have raised the target price for the S&P 500 index in 2024 by 300 points to 4800 points, according to a recent report. The report indicates that the expected return rate for US stocks next year will be in single digits, reflecting a gradual slowdown in economic growth despite easing inflation.

Based on their optimistic outlook for corporate earnings, Barclays has raised their earnings per share forecast for the S&P 500 index next year from $223 to $233. However, even with this adjustment, the revised forecast is still $13 lower than the market consensus.

The report suggests that as global economic activity slows down next year, the current market consensus of double-digit earnings growth for 2024 is overly optimistic. Large-cap stocks are expected to outperform small-cap stocks, with a greater emphasis on value and quality factors rather than growth:

Ongoing inflation resistance, weak industrial output, and a slowdown in growth outside the United States will put pressure on the US stock market.

The year-end target for the S&P 500 index is projected to be 4700 points, with earnings per share of $237. Goldman Sachs' basic assumption for next year is that the US economy will continue to expand at a moderate pace, avoiding a recession, and the S&P 500 valuation will be around 18 times, close to the current price-to-earnings ratio.

UBS, on the other hand, believes that there is a significant gap between the current strength of the US stock market and weak economic expectations, which could potentially put investors in a dilemma:

It is recommended to maintain a cautious stance until the release of US economic data in 2024, with a focus on labor market conditions, credit performance, and corporate earnings expectations.

Optimists - Bank of America, Citigroup, HSBC, Goldman Sachs, and Deutsche Bank

Bank of America believes that the US stock market may experience a period of "panic" before a significant rise, and by the end of 2024, the S&P 500 index will reach 5000 points:

A bull market in US stocks will only occur after severe economic slowdown or credit risk events such as credit risk, significant decline in oil prices, and consumption. This will include stock market panic, declining corporate profits, and concerns about Federal Reserve policies.

The combination of three key factors - 3P: extremely bearish market sentiment, declining corporate profits, and loose policies - is considered a signal for the stock market to turn to a comprehensive bullish trend. Risk assets are expected to decline in the short term, and the correlation between US Treasury yields and stock prices will decrease.

Nicole Inui, Head of Stock Strategy at HSBC, predicts in a recent report that the S&P 500 could reach 5000 points by the end of 2024, and even higher if the US can avoid an economic recession.

Inui believes that the possibility of a rate cut by the Federal Reserve in the coming year is a tailwind for US stocks, while an unexpected slowdown in the US economy and the presidential election in November next year could act as headwinds for the stock market:

If the Federal Reserve can bring inflation back to its target level without causing an economic recession, thus achieving a soft landing for the economy, then 5000 points may still be conservative. Drawing from historical data, the S&P 500 index has averaged a return rate of 22% in the six months after the end of an interest rate hike cycle, provided that an economic recession is avoided.Goldman Sachs analysts believe that the Federal Reserve will no longer be a "roadblock" to the stock market's rise in 2024. With the increasing expectation of interest rate cuts, they have raised their forecast for the S&P 500 index from 4700 points to 5100 points. The slowdown in inflation and the Fed's relaxed policies will keep real yields low, supporting a price-to-earnings ratio of over 19 for US stocks.

The first key factor driving the stock market's rise in 2024 is the decline in real yields after adjusting for inflation. The second factor is the strong earnings potential of the companies in the S&P 500 index based on the current economic growth and expectations for future profit growth.

Deutsche Bank does not believe that the current valuation of US stocks is too high. In its latest report, Deutsche Bank points out that even in the event of a mild recession in the US, corporate profits will remain resilient. They expect the S&P 500 index to rise by 7% and reach 5100 points by the end of next year.

If the US economy experiences a mild and short-lived recession, corporate profits are expected to grow by 10%. If the US gross domestic product (GDP) grows by 2%, profits are expected to grow by 19%. In the first half of next year, the US economy is expected to experience a "mild" recession, which will prompt the Federal Reserve to cut interest rates by 175 basis points. The forecast for next year's US economic growth rate is only 0.6%.