Top Wall Street Bull Warns of a Pause in Stock Rally but Sees S&P 500 Grinding Higher in 2024

According to Oppenheimer Asset Management strategists, U.S. stocks are poised for a subdued start in 2024, entering a data-dependent phase until the kickoff of the fourth-quarter earnings season. The analysts, led by John Stoltzfus, Chief Investment Strategist and Managing Director at Oppenheimer, anticipate a temporary slowdown in the bullish momentum that saw the three major indexes achieve double-digit growth last year. Stoltzfus emphasized the need for traders and investors to evaluate the substantial rally in stocks since the low point on October 27, which surged through the end of the year.

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The closing months of a turbulent 2023 witnessed a remarkable upward surge in the stock market, fueled by growing optimism that the Federal Reserve might initiate interest rate cuts in the first half of the new year. The S&P 500 experienced an 11.2% jump in the fourth quarter, including a 4.4% increase in December alone, resulting in an annual gain of 24.2%. According to Dow Jones Market Data, this also marked the best quarter for the large-cap benchmark index since the last three months of 2020.

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In a Tuesday client note, Stoltzfus and his team acknowledged that it is not uncommon for markets to pause and reassess after such a substantial bull run, especially at the conclusion of a robust fourth quarter. They anticipate the stock market to remain "data-dependent" until key market-moving catalysts, such as earnings reports, emerge later in the month. With the S&P 500 hovering just below its record set almost two years ago, the upcoming earnings season is expected to provide conviction and direction.

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The earnings season for the fourth quarter of 2023 is set to begin at the end of the next week, starting with major banks like JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup reporting. Despite the potential temporary pause in the stock rally, Stoltzfus remains optimistic about the S&P 500 reaching his team's price target of 5,200 by the end of 2024. This target implies a 9.7% advance from the S&P 500's level on the first trading day of the year, around 4,742.

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The strategists at Oppenheimer highlighted that the "further upside" in stock prices this year will be supported by "fundamental improvements" in the stock market. They maintain an overweight stance on equities, with a preference for cyclical sectors over defensive ones.

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Additionally, Oppenheimer expects U.S. corporate revenues and earnings to sustain growth throughout 2024. Their earlier projection in early December suggested earnings for S&P 500 companies reaching $240 per share, with a price-to-earnings ratio for the index expanding towards 21.7 times 12-month forward earnings in 2024. As of Tuesday, the S&P 500 was trading at 19.6 times forward earnings, according to FactSet data.

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On Tuesday, U.S. stocks finished mostly lower, with Treasury yields inching higher. The S&P 500 declined by 0.6%, closing at 4,742.83, the Dow Jones Industrial Average edged up less than 0.1% to 37,715.04, and the Nasdaq Composite dropped by 1.6%, settling at 14,765.94, as per FactSet data.