Wall Street strategists are worried that US stocks are on a trip to nowhere, but that doesn’t mean you shouldn’t go along for the ride. Goldman Sachs Group Inc.’s chief US equity strategist David Kostin said recently that the S&P 500 Index has essentially “no return” left in the tank for the rest of 2024. Here’s the Marketwatch writeup of his comments:
The US stock market’s climb this year probably has stalled for the rest of 2024, even as investors remain optimistic that companies stand to benefit from the adoption of artificial intelligence, according to Goldman Sachs Group’s David Kostin.
There’s basically “no return” left for the S&P 500 Index from now on this year, Kostin, Goldman’s chief US equity strategist, said Thursday on stage at the bank’s RIA Professional Investor Forum in New York. Kostin has forecast the S&P 500 will finish 2024 at 5,200.
Kostin is actually pretty representative of his professional peer group. Among 21 Wall Street equity strategists surveyed by Bloomberg, the average and median respondent see the index ending the year at 5,065 and 5,170, respectively, implying that it will actually decline slightly from here. With 3-month Treasury bills offering a “risk-free” yield of about 5.4%, why would anyone stay in the stock market if expected upside is zilch? In essence, it’s because the gurus are so often wrong, and by such large margins.
So far this millennium, there have been six other years when strategists headed into this part of the calendar expecting negative or negligible price returns for the US benchmark. The market beat the projection every time, and on five occasions delivered returns of 12% or better. On nine other occasions, the typical strategist projected significant further upside and the index ended up declining from spring through the end of the year. (I published a version of this analysis in late December when strategists were also predicting a go-nowhere market for 2024, and the index is up 9.5% since then.) That doesn’t mean you should do the opposite of what strategists say, but it sure shows the perils of taking their word as gospel. They’re smart and capable modelers and risk-assessors, yet they can’t see into the future any better than you and me.
A few things that might prove them wrong this time include a turn around in inflation data and bullish artificial intelligence guidance from the likes of Nvidia Corp.
Like many people, my optimism about imminent rate cuts has been tempered by the less-than-ideal inflation data in the first quarter, but I’m still hopeful that it will turn around later in the year. If the Federal Reserve starts fanning rate cut expectations again in earnest, there’s almost no way that the stock market won’t benefit, as long as corporate profits and the labor market remain strong.
I’m a bit less starry-eyed about AI in the near-term, but we sure can’t rule it out as an upside risk. Nvidia alone now makes up about 5% of the index by weighting, and it’s still capable of exploding for over 15% returns on a single bullish earnings report (as it has on two of the last four, with the next one on tap later this month). Yes, we’ve all heard the Cisco Systems Inc. comparison from the Internet era, and, no, it’s not a good idea to bet all one’s chips on the idea that Nvidia’s extraordinary run will last forever. But with revolutionary tech still in the rollout phase, it isn’t pie-in-the-sky to suspect that another equity-market AI play could soon emerge to pick up where the chipmaker leaves off.
Finally, there is, of course, still cash on the sidelines waiting to be deployed. Money-market funds are still full to the gills with funds from retail investors who’ve been told that short-term government instruments are the safest place to be. Some of them, perhaps, are thusly allocated because sellside strategists keep telling them that stocks have run out of upside. If the Fed starts cutting rates later in the year on the back of further disinflation, those funds will start searching for a new home.
In other words, the experts may think the market has nothing left in the tank and that the risk-to-reward ratio looks relatively unattractive — and who am I to claim I have a better crystal ball? But history suggests that the greater risk is credulously believing they know what the future holds.
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