What is the corporate earnings forecast for 2024?

Meanwhile, earnings of S&P 500 companies are projected to grow 10.9% in 2024, according to FactSet. That’s up from low single-digit increases last year, a leap that can partly be traced to the resolution of pandemic-related supply chain snarls and faster growth in productivity, or output per worker, said Ryan Detrick, chief market strategist of Carson Group, an investment firm.

On the surface, it may look as if the stock market is all about the Fed and interest rates. Wall Street likes lower borrowing costs for consumers and businesses because they spur faster growth, which should boost corporate profits. Lower rates also coax investors to move money from bonds that now have lower returns to higher-yielding stocks.

Last fall, as inflation eased substantially, stocks took off, largely in anticipation of faster Fed rate cuts. The rally picked up steam when the Fed upped its 2024 forecast from two to three cuts in mid-December. The S&P 500 index is up 26.6% since inflation began slowing and has gained 10.3% this year.

But even in February and March, as a key inflation measure, the consumer

The Fed typically trims rates to stimulate a flagging economy or dig it out of a recession. But lower rates probably wouldn’t do much for stocks if the economy and corporate earnings were foundering, Detrick and Zaccarelli said.

Now, though, the Fed plans to shave rates not to jolt the economy but to bring rates closer to their long-run average because inflation is getting close to normal. Otherwise, inflation-adjusted rates would restrain the economy more than needed.

Since 1984, when the Fed slashed interest rates to nudge them back to normal after a flurry of rate increases, the S&P 500 index has climbed an average of 13.2% in the following 12 months, according to Detrick’s analysis.

By contrast, when the central bank has reduced rates to head off – or rescue the economy from – a downturn, the benchmark stock index has fallen an average of 11.6% in the following 12 months.

Is it a bad idea to invest in stocks right now?

Despite the positive backdrop, there are still notable risks for investors. “The biggest risk is the Fed keeps rates too high for too long” and the economy slips into recession, Zaccarelli said.

Also, stock prices are historically high at 20.9 times expected earnings over the next 12 months, according to FactSet. That compares with a fiveyear average earnings multiple of 19 and a 10-year average of 17.7. In other words, stocks are pricey and could be poised for a correction.

Detrick, though, notes that prices were 35 to 40 times earnings in the late 1990s, adding, “Valuations are high, but they’re not astronomically high.”

After setting an all-time record in January 2022, the S&P index sold off on skyrocketing inflation and Fed rate hikes and didn’t return to, and then top, that peak until this past January, he said, suggesting equities are still making up for lost time.