2024 Market Projections: Fundstrat’s Lee Tops Wall Street with S&P 500 Forecast

Tom Lee, the head of research at Fundstrat Global Advisors and a consistent advocate for equities, envisions the S&P 500 rallying to 5,200 by the end of the upcoming year, indicating a robust 14% increase from its current level. In his analysis released on Thursday, Lee predicts that the decline in inflation will result in lower interest rates and a more rapid-than-expected improvement in financial conditions, leading to enhanced corporate earnings and strengthened stock-market valuations.

Despite acknowledging potential weakness in the labor market during the first half of the year, Lee expresses optimism that the U.S. economy will likely avoid a recession in 2024. He notes a decrease in investor skepticism as we enter the new year, maintaining an overall positive stance on equities. However, he suggests that the majority of gains may materialize in the latter part of 2024, according to a Thursday note addressed to clients.

Anticipating an easing of financial conditions driven by expectations of the Federal Reserve ceasing interest rate hikes and potentially implementing rate cuts in the coming year, Lee expects a rise in consumer income, improved purchasing power, and real wage gains. Additionally, he foresees a decline in 30-year mortgage rates and a release of “pent-up” demand from American corporations, contributing to a more favorable macroeconomic environment compared to 2023.

Concerning stocks, Lee predicts an expansion of the S&P 500’s price-to-earnings ratio (P/E) to around 20 times 12-month forward earnings in 2024. Currently trading at over 18 times forward earnings, Lee supports his argument by citing historical trends since 1937, indicating that when 10-year Treasury yields ranged between 4% to 5%, the S&P 500’s P/E exceeded 18 times forward earnings about 65% of the time.

In terms of earnings, Lee forecasts an 8.3% growth in S&P 500 earnings-per-share (EPS) to $260, driven by a cyclical EPS recovery and easing financial conditions that may stimulate a rebound in capital expenditures.

Lee’s year-end target for the S&P 500 in the next year is 8.1% higher than the 4,811 average forecast from 11 sell-side strategists polled by MarketWatch last week. Recognized for his bullish outlook, Lee accurately predicted the stock-market rally in 2023 and envisions the S&P 500 reaching a new all-time high of 4,825 in the final weeks of this year.

As of Thursday, the S&P 500 had risen by 0.8% to 4,587, the Dow Jones Industrial Average was 0.3% higher, and the Nasdaq Composite was on track for a 1.3% gain, according to FactSet data.