In October 2023,the current bull market turned one year old,and as Ken Fisher shared in his video recapping 2023 and summarizing his 2024 outlook,bull markets that reach one year almost always make it to two.We think 2024 likely proves no exception.Why?Fundamentally,we believe stocks move most on the difference between expectations and reality.So when thinking about 2024,a good starting point is to try to understand the state of investor sentiment as the year began.Sentiment surveys suggest many investors have meager expectations for this year.In this article,we’ll take a closer look at what we believe current sentiment gets wrong about 2024,and why we think stocks likely deliver a good-to-great year.
Forecasters Aren’t Expecting Much For 2024
One way to gauge stock market expectations is by looking at publicly available forecasts from various investment professionals.Professional investors’annual forecasts,when plotted on a histogram,typically cluster.This can be seen in the chart below using 2023 and 2024 S&P 500 forecast data.Our research indicates that,in most years,the market actually surprises and full-year returns end up at the tails or outside the bell curve altogether.In our view,markets are quite efficient and typically price in consensus forecasts,making it less likely full-year returns land near the median estimate.
For example,in January 2023 the median forecast for the year was 9.4%,but US stocks handily beat those expectations.Looking at 2024,the median forecast is 1.8%.We expect 2024 to be another year where the market surprises to the upside of the median forecast.While we anticipate a better-than-expected 2024,we suggest investors remain vigilant and monitor for downside risks throughout the year.
Average Returns Aren’t Normal,Normal Returns Are Extreme
The low single-digit median professional forecast suggests flattish stock returns for this year.Some might worry 2023’s nicely positive stock returns are unlikely to repeat in 2024,but we believe this misunderstands the frequency of bigger up years in the market.Many folks know stocks’long-term average return is around 10%annually,but as the following chart shows,that average is made up of yearly returns that vary widely.Flattish returns like the 1.8%median professional forecast for 2024 just aren’t the norm.In fact,years with returns between 0%and 10%occurred just 14%of the time since 1926.Meanwhile,US stocks were up big(over 20%)more often than any other outcome—around 39%of the time.