Morgan Stanley analyst Mike Wilson recently made a bold prediction for the stock market in 2024, stating that he expects stocks to remain largely stagnant. Wilson projected earnings growth in the S&P 500 to reach $229 per share, resulting in a year-end target for the index of 4,500, representing a modest 2% increase compared to current levels.
The basis for Wilson’s projection lies in the lackluster commentary from companies regarding the state of the US economy and consumer health as we approach 2024. He believes that factors such as the erosion of fiscal stimulus and the Federal Reserve’s interest rate strategy have dampened both corporate and consumer sentiment.
Although Wilson expects the earnings headwinds to persist into early next year, he anticipates a durable recovery taking hold thereafter. He sees positive operating leverage and growth stemming from artificial intelligence as key drivers of margin expansion, leading to earnings improvements in 2024. In fact, he predicts an impressive 16% growth in earnings per share from 2024 to 2025, largely due to the influence of AI.
To navigate the current stock market environment, Wilson recommends a “barbell” strategy involving both defensive growth and cyclical sectors. This approach accounts for the elevated stock-specific risks in the market. According to Wilson, defensive growth and cyclical sectors are likely to outperform during the late stages of the business cycle.
In sum, Wilson’s outlook for stocks in 2024 is relatively flat. While he does anticipate a marginal increase in the S&P 500 index, he cautions that earnings headwinds may continue to pose challenges in the near term. Nonetheless, Wilson remains optimistic about the future, pointing to the potential for AI-driven growth and the merits of a diversified investment strategy.
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