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U.S. stocks are likely to start 2024 with a breather and to remain data-dependent until the start of fourth-quarter earnings season, as a bull run that saw the three major indexes post double-digit growth last year may lose steam in early January, according to strategists at Oppenheimer Asset Management.
“Considering the powerful rally that stocks stateside have had from a low since October 27, it should come as no surprise that traders and investors needed to take the opportunity to assess a move from the October low through last Friday,” said strategists led by John Stoltzfus, chief investment strategist and managing director at Oppenheimer.
The stock market saw remarkable upward momentum in the closing months of a roller-coaster 2023 amid growing optimism that the Federal Reserve may begin cutting interest rates as early as the first half of this year. The S&P 500
SPX
jumped 11.2% in the fourth quarter, including a 4.4% advance in December alone, for a yearly gain of 24.2%. That was also the large-cap benchmark index’s best quarter since the last three months of 2020, according to Dow Jones Market Data.
“It’s not uncommon for markets to pause to digest a bull run of the magnitude experienced in the fourth quarter just ended,” Stoltzfus and his team wrote in a Tuesday client note.
They also foresee the stock market to remain “data-dependent” until more market-moving catalysts arrive later this month, such as earnings reports, to fuel conviction with the S&P 500 hovering just below its record set nearly two years ago.
U.S. companies are due to start reporting earnings for the fourth quarter of 2023 at the end of next week, with the nation’s largest banks, including JPMorgan Chase
JPM,
Bank of America
BAC,
Wells Fargo
WFC,
and Citigroup
C,
first up on the earnings calendar.
However, Stoltzfus doesn’t see the potential pause in the stock rally as something that would prevent the S&P 500 from achieving his team’s price target of 5,200 by the end of 2024. It implies a 9.7% advance from where the S&P 500 ended on the first trading day of this year, at around 4,742.
The strategists said the “further upside” in stock prices this year will be supported by the “fundamental improvements” in the stock market. They remain overweight on equities, favoring cyclical over defensive sectors, according to the client note.
Oppenheimer also expects U.S. corporate revenues and earnings to continue to grow over the course of 2024. They noted in early December that they see the earnings for the S&P 500 companies reaching $240 per share and the price-to-earnings ratio for the index expanding toward 21.7 times 12-month forward earnings in 2024.
The S&P 500 is trading at 19.6 times forward earnings as of Tuesday, according to FactSet data.
Also see: A stock investor’s guide to the first trading days of 2024
U.S. stocks finished mostly lower on Tuesday as Treasury yields edged higher
BX:TMUBMUSD10Y.
The S&P 500 was down 0.6%, to end at 4,742.83, while the Dow Jones Industrial Average
DJIA
was up less than 0.1%, at 37,715.04, and the Nasdaq Composite
COMP
was down 1.6%, to settle at at 14,765.94, according to FactSet data.
