Stock Market Forecast: Long-Term Outlook and Strategic Shifts

“The key to making money in stocks is not to get scared out of them.” -Peter Lynch

asset class returns

Well, What Had Happened Was…

The S&P 500 index edged up 0.4% this week to a fresh record close as the market benchmark wrapped up its strongest Q1 in five years. The S&P 500 ended the shortened Holiday week up +10% from the end of 2023. This is the largest percentage increase the index has achieved in the first quarter of any year since a 13% rally in 2019.

There was more good news on Friday when the financial markets were closed. U.S. consumer sentiment rose unexpectedly in March to the highest in nearly three years, partly thanks to growing confidence that inflation will keep softening. Additionally, the personal consumption expenditures, or PCE, price index rose 0.3% in February, below the 0.4% forecasts. The core inflation, which strips out volatile food and energy prices, rose 0.3% in February and 2.8% year-over-year. If there is a recipe for a healthy stock market in 2024, it will likely incorporate ingredients like a softening Fed, normalized inflation, and healthy consumers.

Not In The Prediction Business.

We’ve often said that we are not in the prediction business. We don’t put a year-end target for the S&P 500 or any other widely followed index. That said, one thing that is interesting about capital markets is that we have a better idea of where things might stand 5-10 years from now than whether the market will be up or down tomorrow. It’s the exact opposite of the relationship you’d have with your doctor, where they could say with certainty that you are unlikely to suffer a medical emergency tomorrow, but who knows if you’ll have a chronic medical condition five years from now. Capital market assumptions (CMAs) are largely valuation-driven. Valuations are a terrible market timing mechanism, but useful in understanding how markets will perform over time.