Whilst the S&P500 had a strong 2023, we remain positive in 2024 with a year-end outlook of 4,950-5,050 and would be buying dips.
Whilst the S&P500 had a strong 2023, we remain positive in 2024 with a year-end outlook of 4,950-5,050 and would be buying dips. Our constructive view rests on our outlook for earnings that have started to inflect higher, and is expected to accelerate in the subsequent quarters ahead.
We currently expect earnings to grow between 7-9% in both 2024 and 2025. At its peak, 76% of S&P500 sectors by market cap exhibited negative year-on-year earnings growth in 4Q22.
Contrast this with 1Q24, where consensus now only expects approximately 9% of sectors by market cap to still be facing negative year-on-year earnings growth.
Another headwind that equity market investors have contended with is the rising interest rate environment due to stubbornly high inflation. With the US economy slowing enough for inflation to moderate, but with no meaningful increase in unemployment, a soft-ish landing remains our base case.
The recent trend in U.S. core inflation indicates satisfactory progress towards the Fed’s target, and their recent guidance implies 75bps of rate cuts in 2024 which would be supportive for equity market multiples.
Our base case assumes a slowing economy that typically favors quality and growth over value. This influences our sector preferences towards Technology, Healthcare, and Consumer Discretionary. It is also worth highlighting that equity investors in 2023 were with both soft landing and recession scenarios.
Going forward, there is a growing argument for an upside case to be considered where both earnings growth and equity multiples are moderately higher than our base case and would imply an outlook closer to 5,250-5,350 for the S&P500. Under such a scenario, we expect the rally in U.S. equities to broaden out towards midcap companies as well.
One key risk in 2024 that investors will likely increasingly focus upon is the U.S. presidential election.
Whilst equity performance during election years have generally been reasonable aside for 2008, we do expect volatility to rise in the months heading into the election that could lead to some choppiness as different policy initiatives are proposed by the candidates, making the case for using derivatives and structures as portfolio protection.
Across Asia, our preferred market remains India where we expect mid-teens earnings growth to translate into low-teens equity market returns.
This remains our only structural overweight market in Asia due to its expected high levels of nominal GDP growth for the foreseeable future, and its historical ability to translate growth into equity market performance.
We remain constructive on South Korea and Taiwan, where we expect semiconductor end markets to improve and demand to inflect higher in 2024.
We are neutral towards Offshore China. While valuations are inexpensive, sentiment remains subdued as investors remain fixated on continued weakness in the property market. We retain our positive view towards Onshore China that has historically been more sensitive to policy initiatives, faces less fund outflow pressure, and valuations that are approaching lows of October 2022. Sector-wise, we favor Communication Services, Information Technology, Oil & Gas, and Brokers.
After two strong years, we expect the Japanese equity market to consolidate its gains in 2024, and we are neutral on this market. With the Fed increasingly expected to cut rates in 2024, and the Bank of Japan potentially ending negative interest rate policy, USDJPY is expected to weaken to 133-137. This will likely be a headwind towards export-oriented companies that benefitted from a weaker yen in 2022 and 2023. We prefer to focus on domestic demand oriented companies in Japan.
Definitions:
S&P 500 Index: market capitalization weighted index of the five hundred, largest, publicly traded companies in the United States
IBOV Index: the benchmark index of about 86 stocks traded on the B3, accounting for the majority of trading and market capitalization in the Brazilian stock market.
CSI 300 Index: A capitalization-weighted stock market index designed to replicate the performance of the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange.
Sensex Index: free-float market-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange.
Jakarta Composite Index: an index of all stocks that are traded on the Indonesia Stock Exchange (IDX).
FTSE Bursa Malaysia Index: a capitalisation-weighted stock market index, composed of the 30 largest companies on the Bursa Malaysia by market capitalisation that meet the eligibility requirements of the FTSE Bursa Malaysia Index Ground Rules.
S&P BMV IPC Index: the index seeks to measure the performance of the largest and most liquid stocks listed on the Bolsa Mexicana de Valores.
Straits Times Index: a capitalisation-weighted measurement stock market index that is regarded as the benchmark index for the stock market in Singapore.
FTSE/JSE Top 40 Index: consists of the largest 40 companies ranked by investable market value in the FTSE/JSE All-Share Index.
KOSPI Index: the index of all common stocks traded on the Stock Market Division—previously, Korea Stock Exchange—of the Korea Exchange. It is the representative stock market index of South Korea, like the S&P 500 in the United States.
Hang Seng Index: is a free float-adjusted market-capitalization-weighted stock-market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.
Whilst the S&P500 had a strong 2023, we remain positive in 2024 with a year-end outlook of 4,950-5,050 and would be buying dips. Our constructive view rests on our outlook for earnings that have started to inflect higher, and is expected to accelerate in the subsequent quarters ahead.
We currently expect earnings to grow between 7-9% in both 2024 and 2025. At its peak, 76% of S&P500 sectors by market cap exhibited negative year-on-year earnings growth in 4Q22.
Contrast this with 1Q24, where consensus now only expects approximately 9% of sectors by market cap to still be facing negative year-on-year earnings growth.
Another headwind that equity market investors have contended with is the rising interest rate environment due to stubbornly high inflation. With the US economy slowing enough for inflation to moderate, but with no meaningful increase in unemployment, a soft-ish landing remains our base case.
The recent trend in U.S. core inflation indicates satisfactory progress towards the Fed’s target, and their recent guidance implies 75bps of rate cuts in 2024 which would be supportive for equity market multiples.
Our base case assumes a slowing economy that typically favors quality and growth over value. This influences our sector preferences towards Technology, Healthcare, and Consumer Discretionary. It is also worth highlighting that equity investors in 2023 were with both soft landing and recession scenarios.
Going forward, there is a growing argument for an upside case to be considered where both earnings growth and equity multiples are moderately higher than our base case and would imply an outlook closer to 5,250-5,350 for the S&P500. Under such a scenario, we expect the rally in U.S. equities to broaden out towards midcap companies as well.
One key risk in 2024 that investors will likely increasingly focus upon is the U.S. presidential election.
Whilst equity performance during election years have generally been reasonable aside for 2008, we do expect volatility to rise in the months heading into the election that could lead to some choppiness as different policy initiatives are proposed by the candidates, making the case for using derivatives and structures as portfolio protection.
Across Asia, our preferred market remains India where we expect mid-teens earnings growth to translate into low-teens equity market returns.
This remains our only structural overweight market in Asia due to its expected high levels of nominal GDP growth for the foreseeable future, and its historical ability to translate growth into equity market performance.
We remain constructive on South Korea and Taiwan, where we expect semiconductor end markets to improve and demand to inflect higher in 2024.
We are neutral towards Offshore China. While valuations are inexpensive, sentiment remains subdued as investors remain fixated on continued weakness in the property market. We retain our positive view towards Onshore China that has historically been more sensitive to policy initiatives, faces less fund outflow pressure, and valuations that are approaching lows of October 2022. Sector-wise, we favor Communication Services, Information Technology, Oil & Gas, and Brokers.
After two strong years, we expect the Japanese equity market to consolidate its gains in 2024, and we are neutral on this market. With the Fed increasingly expected to cut rates in 2024, and the Bank of Japan potentially ending negative interest rate policy, USDJPY is expected to weaken to 133-137. This will likely be a headwind towards export-oriented companies that benefitted from a weaker yen in 2022 and 2023. We prefer to focus on domestic demand oriented companies in Japan.
Definitions:
S&P 500 Index: market capitalization weighted index of the five hundred, largest, publicly traded companies in the United States
IBOV Index: the benchmark index of about 86 stocks traded on the B3, accounting for the majority of trading and market capitalization in the Brazilian stock market.
CSI 300 Index: A capitalization-weighted stock market index designed to replicate the performance of the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange.
Sensex Index: free-float market-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange.
Jakarta Composite Index: an index of all stocks that are traded on the Indonesia Stock Exchange (IDX).
FTSE Bursa Malaysia Index: a capitalisation-weighted stock market index, composed of the 30 largest companies on the Bursa Malaysia by market capitalisation that meet the eligibility requirements of the FTSE Bursa Malaysia Index Ground Rules.
S&P BMV IPC Index: the index seeks to measure the performance of the largest and most liquid stocks listed on the Bolsa Mexicana de Valores.
Straits Times Index: a capitalisation-weighted measurement stock market index that is regarded as the benchmark index for the stock market in Singapore.
FTSE/JSE Top 40 Index: consists of the largest 40 companies ranked by investable market value in the FTSE/JSE All-Share Index.
KOSPI Index: the index of all common stocks traded on the Stock Market Division—previously, Korea Stock Exchange—of the Korea Exchange. It is the representative stock market index of South Korea, like the S&P 500 in the United States.
Hang Seng Index: is a free float-adjusted market-capitalization-weighted stock-market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong.
