Yahoo Finance Why Investing Experts Think the Stock Market Could Be Stable in 2024
The stock market is an extraordinarily complex system that is influenced in countless ways every day, by both market participants and external events. Entire industries are devoted to it — and investors, economists and speculators spend a staggering amount of time and money trying to predict how it’s going to behave in the near and distant future.
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While predicting the future is difficult — if not impossible — that doesn’t stop market watchers of all stripes from trying, and there appears to be growing sentiment that the market might be on the verge of returning to a more stable state in 2024. To inform your own outlook for the coming year, GOBankingRates spoke to two experts to get their insight.
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Looking Back
Before looking ahead, it can be helpful to review recent stock market behavior so we have an idea of where the market has been and how it has been performing.
“Markets have been like a pendulum since 2020,” said Matt Willer, partner and managing director of capital markets at Phoenix Capital Group. “Wild swings in both directions, beginning with Covid, dovetailing into runaway inflation and talk of recession, and now a six- to 12-month bullish upswing as most observers are baking in a soft landing for the markets, avoiding recession.”
Among other factors, historically low interest rates during the early stages of the pandemic drove an increase in highly speculative investments like cryptocurrencies and meme stocks. When the Federal Reserve finally began raising rates to fight inflation, the tide went out on many of the riskiest investments. Recession fears loomed large throughout 2022, but the economic downturn never materialized.
The stock market went on a tear in 2023, with the S&P 500 index seeing gains of 24% in the course of the year, essentially erasing the 20% loss it experienced in 2022.
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Key Factors
Countless social and political conditions come into play when trying to get a sense of how the stock market will behave.
Don Montanaro is president of Firstrade Securities, one of the leading online brokerages for active retail stock traders.
He said, “I predict that 2024 will be marked by increased political volatility around election-related news and the troubles in currently active war zones around the globe, which are unlikely to abate soon.”
Normally this might be expected to result in uncertainty in the stock market, but Montanaro said he believes investors will remain bullish on U.S. markets.
From a macroeconomic standpoint, one of the most important factors to incorporate into your understanding of the stock market is the actions of the Federal Reserve. Its decision to raise and lower interest rates — or to stand pat — always sends out shockwaves that affect the market. In higher-rate environments like the present moment, stocks may lag as lower-risk bonds become more popular, although that certainly hasn’t been the case so far.
“I wouldn’t be surprised, or saddened, if the Fed holds steady on interest rates this year,” Montanaro said. “I think the economy and banking system are showing great resilience with rates where they are, so I don’t see the urgency for the Fed to move given the current outlook. I think investors will see current interest rates as reasonable when taking a long view of history. I don’t think the Fed will have an obvious reason to rush to drop rates in the first half of the year.”
The Year To Come
It bears repeating just how hard it is to predict what the future holds for the stock market, especially as the time horizon becomes longer. Willer echoed that sentiment but still provided his opinion on what the new year will hold.
“While it’s a fool’s errand to forecast market performance, employment is strong, rates are historically reasonable and may tilt lower in 2024, earnings are generally strong, and the economy remains surprisingly vibrant,” Willer said. “I’d expect 2024 to generate more historically in-line returns of 7% to 10%, absent any worldly event or unexpected financial shock. All said, I expect a more ‘normal’ year in the markets vis a vis what we have seen since early 2020.”
Montanaro took a firmer stance on the coming year.
“I am extremely bullish long term,” he said. “I predict stock increases will, especially and exceptionally, be driven by increased productivity across many U.S. firms and sectors as efficiencies are realized from AI deployments. Over the near term, I expect a market pullback from recent highs. However, I think investors will remain bullish long term on U.S. markets as inflation fighting measures continue to be felt at home.”
Montanaro also provided an important reminder: “Investors, as always, should be mindful of their own personal tolerance for risk and should consider taking profits now, planning to re-deploy after an expected pullback from recent highs plays out.”
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This article originally appeared on GOBankingRates.com: Why Investing Experts Think the Stock Market Could Be Stable in 2024
