After a 2023 in which the S&P 500 rose more than 24%, the rough markets in the first four trading days of the year proved somewhat jarring. Fundstrat Head of Research Tom Lee had already warned that the first half of the year would likely be bumpy, as investors get "itchy" while waiting for anticipated rate cuts from the Federal Reserve. On Friday, he added, “This turmoil in the first week of trading is telling us to brace for a challenging year,” referencing his previous research showing that the first five trading days of January tend to foreshadow how the rest of the year plays out.
However, Lee's outlook for 2024 as a whole remains constructive and largely unchanged. "We expect stocks to ultimately rally strongly in the second half of the year," he said, with his year-end S&P 500 target at 5,200. The tailwinds he sees driving his 2024 forecast remain in place. They include:
- Declining inflation
- A dovish Fed shifting to managing the business cycle, rather than fighting an inflation war
- Falling interest rates, benefiting consumers, corporates, and valuations
- An upward inflection in PMI boosting earnings growth
- Positive flows as sidelined investors allocate funds back into equities
In the near term, Lee points out that the strong gains of December are likely to extend into January and February: “When December is positive, markets tend to do well in January and February,” especially if December was up more than 4% (which it was). This coincides with election-year seasonality, discussed in our Chart of the Week below.
Head of Technical Strategy Mark Newton has a constructive near-term reaction to the first trading week of the year. Technically, “four days of equity weakness haven't really done much technical damage at all,” he said on Friday. Although rising bond yields pressured equities this week, “momentum on yields is still very negative. I suspect that yields should start to roll over again soon, and that means that equities should start to rally, at least in the short term.”
What is FS Insight?
FS Insight is a market-leading, independent research boutique. We are experts in U.S. macro market strategy research and have leveraged those fundamental market insights to become leading pioneers of digital assets and blockchain research.
Tom Lee's View
Proprietary roadmap and tools to navigate and outperform the equity market.
Macro and Technical Strategy
Our approach helps investors identify inflection points and changes in equity leadership.
Deep Research
Our pioneering research provides an understanding of fundamental valuations and risks, and critical benchmarking tools.
Videos
Our macro and crypto videos give subscribers a quick and easy-to-understand audiovisual updates on our latest research and views.
US Policy Analysis
Our 40-year D.C. veteran strategist cuts through the rhetoric to give investors the insight they need.
