Market Outlook Set Positive Tone

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Resilient GDP Growth Defies Recession Predictions

There are several optimistic factors that turn us to the positive for the U.S. stock market in 2024. For all the consensus expectations of a recession in 2023, GDP growth held up surprisingly well. It’s expected to slow down in Q4, but the first three quarters were a good showing, especially from the consumption component in Q1 and Q3. Given the cumulative effect of inflation, most had expected consumer spending to take a hit, but it too, held up better than expected.

Balancing Act for Monetary Policy and Market Optimism

The pace of GDP growth should slow from here, both because the readings for 2023 were above trend (trend is thought to be between 1.5-2.0%) and because of the lagged effects of monetary policy. The Fed has stated on numerous occasions that they expect a period of below trend growth as a result of tightening. The intention is to slow growth but not stop it, and we’ll see how that unfolds in 2024, but for now markets are encouraged by the data.

Positive Earnings Surprises

Another promising element has been, and continues to be, positive earnings surprises for S&P 500 companies. Although we were technically in an earnings recession (defined as two or more consecutive quarters of negative y/y growth) until Q3 2023, the results came in above estimates every quarter and perhaps more importantly, the earnings expectations for 2024 are strong. 

Whether the high expectations for 2024 come true or not is yet to be seen, but as things stand, markets are buoyed by the prospect of strong and rising margins in the new year.

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