S&P500 will be close to current levels by the end of 2024, suggesting that the AI rally is fizzled out
By Noel Randewich
(Reuters) – The S&P 500 is trading near its recent record levels at year-end, according to a Reuters poll of market strategists that suggests the AI rally is losing momentum as investors await a widely expected rate cut from the U.S. Federal Reserve next month.
The leading index S&P 500 will end 2024 at 5,600 points, according to the median forecast of 41 equity strategists, analysts, brokers and portfolio managers surveyed from August 8 to 20. On Monday, the index closed at 5,608 points.
In a May survey, market strategists expected the S&P 500 to remain nearly unchanged for the rest of the year. Since then, however, the index has risen more than 5 percent.
Overall, the S&P 500 is up about 18% so far through 2024, helped by strong gains in Nvidia, Microsoft and other Wall Street heavyweights vying for dominance in emerging AI technology.
The US stock market has been marked by volatility in recent weeks, partly due to recession fears but also related to the unwinding of large leveraged positions in the markets following a sudden, sharp rise in the Japanese yen, which is used as a funding currency.
Easing recession fears helped fuel stocks last week, which posted their biggest weekly gain since November.
Investors have also become nervous about the huge spending by Google parent companies Alphabet, Microsoft and Meta Platforms to build their AI infrastructure.
“The AI sugar rush is fading and the market is grappling with a potential GDP slowdown,” said Daniel Morgan, portfolio manager at Synovus Trust, while warning of “little room for error” due to stretched valuations.
The S&P 500 has fallen about 1 percent since its record close on July 16.
Nvidia’s share price has risen over 150% through 2024 and analysts expect the chipmaker’s quarterly net profit to more than double when it releases its results next week, according to LSEG.
The S&P 500 is expected to trade at 5,900 by the end of next year, up 5.2 percent from Monday’s closing price, the survey shows.
Stock market strategists typically struggle to accurately predict the exact levels of indexes, but their forecasts provide insight into the mood on Wall Street, and Reuters poll medians often correctly predict trading direction.
A neck-and-neck race between former President Donald Trump and Vice President Kamala Harris means additional uncertainty for investors ahead of the U.S. presidential election on November 5.
The turmoil in the Middle East and uncertainty about how many interest rate cuts the Fed will make also make it particularly difficult to make predictions about the stock market’s performance at the moment, said Peter Tuz, president of Chase’s investment counsel.
According to CME Group’s FedWatch, money market traders are largely expecting a 25 basis point rate cut at the Fed’s September meeting and a total cut of at least 75 basis points by the end of the year.
When asked by Reuters, more than half of the survey respondents said a correction in equity markets of at least 10% was likely by the end of September. More than half predicted that corporate profits would exceed expectations by the end of 2024.
While the most valuable companies on the US stock market benefited from the AI surge, the majority of the market lagged.
The average S&P 500 stock index has gained about 9 percent this year, while the S&P 500 indices for consumer discretionary, real estate and commodities have languished, each up about 5 percent since the beginning of the year.
After this year’s rally, the S&P 500 is trading at 21 times forward earnings, according to LSEG, compared with a 10-year average of 18.
Goldman Sachs has reduced the probability of a recession in the US over the next twelve months from 25% to 20% following recent positive reports on unemployment and retail sales.
Fed Chairman Jerome Powell will speak at the Jackson Hole economic symposium on Friday, with investors looking for signs of a possible rate cut in September.
(More articles from the Reuters Q3 global equity market survey package)
(Reporting by Noel Randewich; additional reporting by Caroline Valetkevitch, Chuck Mikolajczak, Stephen Culp, Sinead Carew and Chibuike Oguh in New York; polls by Sarupya Ganguly and Purujit Arun; editing by Louise Heavens)
