Benzinga - by Neil Dennis, Benzinga Staff Writer.
Given the fair winds of lower interest rates and a soft landing for the economy next year, the S&P 500 index could return 11% in 2024, analysts predict.
That’s not a bad shout, given that the historical average annual return for the index is around that mark.
In 2023 so far, the S&P 500 is up around 18%. Over the same period, the SPDR S&P 500 ETF Trust (SPY), an exchange-traded product that tracks the index, is up 19%.
But if interest rates do come down, is it better to invest somewhere that gains more exposure to lower rates? DataTrek co-founder Nicholas Colas suggested the Russell 3,000 index of small-cap stocks.
“The Russell is statistically oversold versus the S&P 500 just now,” Colas said. “For investors confident in continued U.S. economic growth and lower rates next year, U.S. small caps are worth a look.”
The Schwab Fundamental U.S. Small Company Index ETF (NYSE:FNDA) tracks U.S. small caps through an exchange-traded fund and is up only 7.1% compared with the senior index.
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Sticking With Large Caps
But DataTrek still likes the big caps and big techs, despite some large moves higher in the sector this year. Colas said that there is upside in 2024 for large caps whether economic growth continues or stumbles.“The worst rookie mistake in investing is thinking that the stock market and economy move in lockstep,” he said.
He explained that if the economy continues to grow, corporate earnings will be lifted, but if there’s a slowdown, the Fed will likely cut rates aggressively and companies will become more efficient.
“Stocks look forward. Yes, a mild recession could take stock prices lower for a time, but we're talking about 2024 returns today, not a quarter or two of equity market performance,” Colas added.
Which Stocks Will Fuel The Rally? Among the large tech stocks, Colas said that in historical context the recent rallies in Nvidia (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL), and Apple (NASDAQ:AAPL) were not overextended and potentially had plenty of room to run.
Microsoft (NASDAQ:MSFT) hit a fresh record high on Wednesday, and the other three remain in sight of their record levels.
Given their weighting on the S&P 500 — a fifth of the index’s total market cap — a strong run by these tech giants in 2024 would “go a long way to helping the index make a new all-time high.”
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