2024 Stock Market Soars, Defying Wall Street Predictions

2024 is on track to be one of the best years for the stock market in modern history.

Through Oct. 22, the S&P 500 (INDEX: ^SPX) broad-market index is up 21.5%. This represents the index’s best performance in the first nine months of the year since 1997, the peak of the dot-com boom.

Yet this success was unexpected. At the onset of 2024, many on Wall Street were predicting a recession due to an inverted yield curve and were taking precautions for the upcoming year.

There were doubts regarding the Federal Reserve’s ability to facilitate a soft landing for the economy. While many expected the Federal funds rate to decrease, most anticipated cuts due to a looming economic downturn rather than significant relief from inflation.

In late January, Wall Street’s average forecast was for the S&P 500 to close the year at approximately 4,861, indicating nearly flat growth or only a 2% increase for 2024, below the historical average gain of 7% annually, excluding dividends.

Among the more pessimistic predictions, JPMorgan Chase set its target at just 4,200, claiming that high valuations would lead to declines amidst a tough macroeconomic environment.

Clearly, Wall Street miscalculated. Major research firms underestimated market performance, with S&P 500 currently around 5,800. Earlier this year, Yardeni Research had one of the highest targets at 5,400.

The market landscape could shift in the coming months, especially with election results and peak earnings season on the horizon. There’s also considerable geopolitical uncertainty. However, absent a black swan event like the pandemic, a downturn below 5,000 seems improbable.

Let’s delve into key lessons from Wall Street’s misjudged forecasts for 2024.

Image source: Getty Images.

AI Takes Center Stage

Nvidia (NASDAQ: NVDA) has been a driving force behind stock market gains since early 2023. Initially, Wall Street overlooked its potential as Nvidia’s performance appeared moderate in late 2023. However, this AI chip giant has delivered exceptional results this year, with its stock nearly tripling, adding roughly $2 trillion in market value and significantly boosting the S&P 500.

The excitement surrounding AI has also propelled stocks such as Meta Platforms and Broadcom, both surging more than 50% year-to-date. This wave of optimism has led to increased investments in utility stocks, anticipating greater demand for electricity due to the power needs of AI data centers.

The utilities sector leads the market with a 29% gain. Notably, Vistra, a deregulated power company, has risen 224% due to expectations of increased electricity demand, showing that future sentiment can impact the S&P 500’s performance as much as actual profits.

Wall Street’s Forecasts: A Lesson in Uncertainty

It might come as no surprise, but it isn’t the first time Wall Street’s early-year forecasts have proven wildly inaccurate.

Last year, experts predicted only a 6% gain for the S&P 500 after the 2022 bear market, but instead, the index soared 24%.

The New York Times reported that since 2000, following Wall Street predictions has been akin to “shooting darts at a dartboard.” From 2000 to 2023, the median forecast missed actual year-end results by an annual average of 13.8 percentage points, suggesting that many predictions lack reliability.

The current market is particularly unpredictable. We are still emerging from a century-defining pandemic and managing the worst inflation in 40 years, exacerbated by pandemic-related government stimulus. Investors are also reacting to new AI advancements, which may be transformative or ultimately fall flat.

Smart Investing: Stick to Proven Strategies

No one, not even Warren Buffett, can predict short-term stock movements, and Buffett himself cautions against trying to time the market.

For investors, there are more reliable strategies, both endorsed by Buffett.

The first option is to invest in an index fund that tracks the S&P 500 and hold it for the long haul. Historically, this index has returned an average of 9% with reinvested dividends.

Another approach is to seek stocks with strong competitive advantages, like Nvidia, and maintain those investments long-term. Although this strategy carries more risk compared to index fund investing, it offers greater potential returns.

Regardless of your investment choices, it’s prudent to ignore Wall Street forecasts and price targets, which often shift with market trends and can be misleading. Stick to Buffett’s advice: focus on companies with sustainable advantages or consider a long-term position in an index fund.

Seize the Opportunity: Invest Wisely

Do you feel as if you’ve missed out on investing in top-performing stocks? Here’s a chance to reconsider.

Our expert analysts occasionally issue a “Double Down” stock recommendation for companies poised for significant growth. If you think you’ve already missed your investment moment, now might be the perfect time to act.

The evidence supports the strategy:

• Amazon: if you had invested $1,000 when we doubled down in 2010, you’d have $21,154!
• Apple: if you had invested $1,000 when we doubled down in 2008, you’d have $43,777!
• Netflix: if you had invested $1,000 when we doubled down in 2004, you’d have $406,992!

Currently, we are issuing “Double Down” alerts for three exceptional companies. Opportunities like this may not come around again soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 21, 2024

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, former director of market development at Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Jeremy Bowman holds positions in Broadcom and Meta Platforms. The Motley Fool recommends and holds shares in JPMorgan Chase, Meta Platforms, and Nvidia. The Motley Fool also recommends Broadcom. For more, see The Motley Fool’s disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.