Why Stocks Might Rise 10% in 2024, per CFRA’s Stovall

After a terrific showing in 2023, the market’s opening sessions for this year—the S&P 500 lost 0.57% Tuesday, and Wednesday is off to a down start—were enervating. Sure, one or two trading days do little to foretell the coming year. And if history is any guide, 2024 should be a good market year. Not a blowout one, mind you, just a good one.

How much? At least 10%. Not as pulse-quickening as 2023’s 24.2% surge for the S&P 500, yet not too shabby. That is what research from Sam Stovall, chief investment strategist at CFRA (Center for Financial Research and Analysis), indicated.

Since 1946, the first year after World War II, when the market had an annual rise of 20% or more, the S&P 500 rose an average 10% the following year, according to Stovall. In the second years, the index was in positive territory 80% of the time. Thus, he wrote in a research note, “Good years tend to follow great years with an above-average return and frequency of gain.”

Stovall did not opine why this follow-on effect occurs. Perhaps the momentum of the 20%-plus first year was strong enough to keep investor psychology buoyant into the second year. Or perhaps the first year’s euphoria led investors to assume correctly that any bad thing—such as that sure-fire buzzkill, a recession—would not appear to blight the second year. For whatever reason, the second year tends to have what Stovall called “a lower trajectory” than the first one, meaning year two returned less.

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The market’s mood for the year ahead, Tuesday notwithstanding, is positive. As Stovall wrote, investors are hopeful “that 2024 will deliver equally impressive returns, now that a slowing economy will likely lead to a soft landing, rather than an outright recession, and the Fed is expected to start cutting rates in the first half.”

Indeed, low unemployment, abating inflation and the Federal Reserve’s decision to end its tightening campaign are all heartening signs. The pros, however, are not anticipating anything near 10% for 2024. Wall Street prognosticators are cautiously expecting muted, or perhaps even flat, growth for the S&P 500 this year.

Over the long pull, the odds tilt toward positive market returns, Stovall pointed out—since 1946, the S&P 500 has been in the black 71% of the time, for an average 6.9% gain. Given that periods of economic expansion have outnumbered those of contraction during that period, this result makes sense, in Stovall’s view. Tellingly, that 6.9% gain fits in with economist Jeremy Siegel’s classic finding that stocks have returned 6.7% annualized since 1802.

To be sure, the future is unknowable and stock forecasts are all too often wrong. Stovall’s upbeat assessment of 2024’s prospects noted that history can be a “guide,” but “it’s never gospel.”