The Stock Market Faces a Meager Upside After 2024 Gains, According to a Survey

The S&P 500 Index has likely reached most of its gains for the year, as investors grow increasingly wary of the stock market's high valuations, according to a recent Bloomberg Markets Live Pulse survey.

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In 2024, the S&P 500 experienced a significant rally, hitting 31 record closing highs. This has led many of the 586 survey respondents to view the asset class as more overpriced than US credit or gold. The bull market, driven primarily by technology shares, has soared approximately 50% since October 2022, outperforming the median advance of past bull markets dating back to 1957.

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US Stocks Are Viewed as Expensive

We asked: Which of these assets is most overpriced?

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Despite the current valuations, investors are not ready to sell off their stocks yet. However, there is evident nervousness, with about half of the survey participants predicting a market correction of at least 10% this year, and 35% expecting it in 2025. This cautious sentiment is also visible in the options market, where traders are hedging against potential losses in tech stocks.

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With the economy and corporate earnings still on the rise and plenty of liquidity in the financial system, most respondents see room for additional, albeit modest, gains this year. The median projection from the survey suggests the S&P 500 will close 2024 at 5,606, nearly 3% above the recent close. This outlook is more optimistic than Wall Street strategists' median target, which predicts the index will end the year at its current level.

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Approximately 75% of participants plan to maintain or increase their exposure to the S&P 500 over the next month. According to Ed Clissold and Thanh Nguyen of Ned Davis Research, it is wise to ride the bullish trend for now. However, they express concerns about the latter half of the year, particularly regarding Federal Reserve policy and the US elections.

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“Maintain an overweight position in equities for now,” they wrote. “But prepare for more defensive positioning, potentially in the third quarter.”

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Michael O’Rourke of JonesTrading highlights the S&P 500’s market capitalization relative to the economy's size, noting that this ratio has only been higher during the 2021 stock surge. He warns, “We are in a bubble and there is an outsized risk that the economy finally slows down in the second half of the year and multiples should contract. These are very dangerous levels for long-term investors to be buying stocks.”

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Artificial intelligence, a significant driver of this year's nearly 15% market advance, is seen by 31% of survey respondents as the most likely trigger for a market selloff. Tech stocks, especially those in the "Magnificent Seven" group led by Nvidia Corp., have been central to profit growth, but Bloomberg Intelligence analysts suggest their influence may decline in the coming months.

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Economic concerns are also prominent. About 27% of respondents fear a stock market drop due to rising unemployment, while nearly a quarter worry about a sudden increase in inflation that might prompt the Fed to maintain higher interest rates longer. The jobless rate rose to 4% in May, the highest since early 2022. Goldman Sachs economists have indicated that the job market could be at an "inflection point," where any further decline in demand for workers will impact jobs rather than just job openings.

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“General economic conditions are confusing,” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “Inflation seems to be subsiding but jobs seem to be slowing down.”

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Despite various concerns for the months ahead, the survey also offers some positive signals. For instance, participants predict oil prices will end 2024 around $80 for WTI futures, close to current levels.

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The uneven rally in stocks has also led to significant market distortions. Value stocks, in particular, appear historically cheap relative to their growth counterparts and the broader market. For 40% of survey participants, value stocks now seem like the best bargain in US stocks, followed by small caps and the equal-weighted S&P 500.

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“We could see the market move higher by the end of the year, if we skirt by a recession – which I think is highly likely,” said Bokeh Capital’s Forrest. “And it all depends on the outlook for 2025 as we near the end of the year.”

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The MLIV Pulse survey was conducted from June 17 to June 21 among Bloomberg News terminal and online readers worldwide who opted to participate, including portfolio managers, economists, and retail investors. Terminal readers can subscribe to future surveys here.

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