Four reasons why the stock market rally in 2024 may look different

The general consensus is that the U.S. will see a positive year of lower interest rates and accelerating earnings growth, and that U.S. market returns are likely to significantly exceed the current single-digit consensus estimate. However, this is where the similarities to last year's rally end, for the following reasons: First, returns are likely to be lower than in 2023, when S&P 500 index increased by 26 percent (this is an increase twice as high as the long-term average). Secondly, it may mean returns in the second half of 2024, when the markets will "digest" the recent increases, face the real risks present on the market and wait for confirmation of the interest rate cut in the middle of the year. Third, we see a big shift among equity market leaders, away from technology companies and towards cyclicals and cheaper assets that are most sensitive to interest rate cuts. Fourth, it will enable Europe and emerging markets to perform better compared to the tech-dominated US market.

What is the risk?

We currently face balanced risks, with the possibility of disappointment with the pace, but not the direction, of interest rate changes. The current consensus assumes six aggressive cuts a year, which are to begin in the first quarter - both in the case of EBCAnd FED (doubling the FED's "dots"). In the meantime, the prevailing sentiment among investors is no longer contrarian (that is, it involves making decisions contrary to general investor sentiment and trends) support. Meanwhile, idiosyncratic factors (price risk, only affecting special circumstances) driving earnings, from AI-tech trends to lower inflationary pressure on margins, should be evident in the upcoming earnings season, while lower inflation and interest rates should help keep stocks afloat. above average valuations.

How is January going?

Historically, this is one of the best months of the year and usually sets the tone for the entire year. This so-called "January barometer" is not infallible, but it has a significant accuracy rate of 70%. However, there is a short-term risk associated with the reality check that emerges from the meeting minutes FOMC of December 13. The protocol turned out to be more dovish than the observed turn Powell. Friday's employment data in the United States, with probable slow declines, and the estimated increase in inflation in Europe are unlikely to confirm the scenario of aggressive six interest rate cuts, currently priced in on both sides of the Atlantic.

About the author

Ben Laidler - global markets strategist in eToro. Capital investment manager with 25 years of experience in the financial industry, incl. at JP Morgan, UBS and Rothschild, including over 10 years as the # 1 investment strategist in the Institutional Investor Survey. Ben was the CEO of the independent research firm Tower Hudson in London and previously Global Equity Strategist, Global Head of Sector Research and Head of Americas Research at HSBC in New York. He is a graduate of LSE and Cambridge University, and a member of the Institute of Investment Management & Research (AIIMR).