The bull market galloped through the first half of the year in a mostly celebratory fashion, kicking up its heels and hitting new highs as if to taunt experts’ modest expectations. As the midpoint of 2024 nears, the stock market forecast for the next six months still looks bullish, building on the same layers of support that have pepped up stocks all year.
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Though risks remain, the reasons for the hopeful mood stack up like tiers of a layer cake. The resilient economy serves as the base. On top of it, corporate earnings rest comfortably. Wall Street forecasts call for steady earnings growth through at least 2026. Even stripping out the megacap technology stocks, the earnings outlook is decent.
Favorable investing themes, starting with AI investment but by no means limited to it, provide more food to fuel stocks. And dividend growth adds another layer to feast on.
So far this year, the S&P 500 is up about 14%, behind an 18% gain by the Nasdaq composite but well ahead of the lagging 2.4% lift by the Dow Jones Industrial Average. That’s much better than expected. When the year began, many analysts saw stock gains slowing from 2023’s strong pace, with the consensus seeing the S&P 500 gaining only 8% to 9% for all of 2024.
Stock Market Forecast For The Next Six Months
To be sure, a few hot names have led the 2024 stock market. Yardeni Research recently noted the collective 10.5% year-over-year gain in revenue and 48.8% vault in earnings per share by eight major tech companies — namely the Magnificent Seven plus Netflix (NFLX). But Yardeni observed that even without their big numbers, S&P 500 stocks saw first-quarter profits rise 8.4% and sales grow 4.1% vs. a year earlier.
As of June 7, when 99% of the companies had announced results, 79% of S&P 500 firms had topped Q1 estimates, FactSet Research said. That was slightly above the five-year average of 77%. However, they topped Wall Street estimates by 7.4% in aggregate, or below the five-year average of 8.5%.
As for Q2, 67 S&P 500 companies have issued negative earnings guidance so far vs. 44 with positive guidance, said John Butters, senior earnings analyst at FactSet.
Butters noted that the forward 12-month price-to-earnings ratio for the S&P 500, at 20.7, is running well past the 10-year average of 17.8 times earnings. So the stock market seems to think that earnings will continue to rise at a favorable clip. Adam Parker, founder and CEO of Trivariate Research, made a similar point in an early June interview on CNBC, citing research that found 75% of large-cap companies are forecast to expand their profit margins over the next 20 months.
Stock Market Forecast And The Fundamentals
Veteran economist Ed Yardeni of Yardeni Research noted the average profit margin among S&P 500 companies rose to 12% in the first quarter from 11.7% in Q4 of last year. This was an “impressive aspect” of the first quarter despite mild quarter-on-quarter declines in both the top and bottom lines.
“A look at the data since 2004 shows that Q1 revenues typically decline on a quarter-vs.-quarter basis as Q4 revenues are buoyed by retailers’ holiday sales,” Yardeni said.
Yardeni noted that financial stocks posted the biggest sequential quarterly revenue growth at 9.9%. Communication services ranked second at 9.5%, followed by information technology (up 8.8%) and health care (up 7.5%).
Overall, Yardeni Research forecasts S&P 500 operating earnings at $250 in 2024, up 12% vs 2023. He puts them at $270 in 2025 (up 8%) and $300 in 2026 (up 11.1%). These figures compare with analysts’ consensus forecasts of $244.70 in 2024, $279.70 in 2025 and $314.80 in 2026.
Portfolio managers have embraced a number of investing themes that are driving solid gains this year. Think of this factor as evidence that Wall Street’s “animal spirits” are alive and well.
AI: Good For Stock Market Forecast For The Next 6 Months?
The major theme is artificial intelligence. According to tech executives, the deployment of generative AI across enterprises, governments and other organizations is accelerating. This has spurred demand for shares in leading companies in the areas of chips, cloud computing, software and data centers.
That’s not the only bullish theme in 2024. The stock market has seen companies benefit from robust demand for new housing, life-extending drugs and medical devices, novel restaurant concepts, and innovation in shoe design and styles. IBD’s restaurant stock group, for instance, has enjoyed a market-beating 22% gain year-to-date.
Yet restaurants hardly stand alone. As of June 13, 21 other industry groups among 197 tracked by IBD have rallied at least 20% this year. The fabless semiconductors group has spurted 50% higher, just ahead of a shoes group that has stepped ahead 41%. Data…
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