A $925 Billion Incentive for Investors to Anticipate a Stock Rally in 2024

The S&P 500 has once again hit a new all-time high, marking its 20th such achievement this year, leading analysts to revise their price forecasts accordingly.

Société Générale now expects the equity benchmark to reach 5,500 by the close of 2024, representing the loftiest projection among strategists.

In a recent note released on Thursday, Yardeni Research expressed confidence in their year-end target of 5,400, indicating that reaching this milestone could pave the way for a target of 5,800 by the conclusion of 2025. This optimistic outlook underscores the firm conviction that the current bull market remains robust.

There is a consistent demand for stocks despite occasional concerns surrounding monetary policy fluctuations, worries about overvaluation, geopolitical tensions, or regulatory issues, such as those affecting Apple’s share price.

As stated by a report, while additional supply can enter the market, as evidenced by this week’s Reddit IPO, companies like FedEx are simultaneously executing significant buyback programs, with FedEx revealing a $5 billion buyback initiative on the same day.

The buybacks are aimed at reducing the number of available shares for a growing pool of investors. According to a team of analysts at Goldman Sachs, led by Cormac Conners, this trend is gaining momentum.

A $925 Billion Incentive for Investors to Anticipate a Stock Rally in 2024
KKR’s $1.7 billion bike investment setback highlights risks in ventures.

Goldman Sachs has provided projections indicating a significant uptick in the buybacks of U.S. stocks over the coming years. They forecast a 13% increase to $925 billion for the current year, with a further surge of 16% expected by 2025, reaching a staggering $1,075 billion.

This anticipated rise follows a trend that has seen corporations collectively repurchase a net total of $5.5 trillion in U.S. equities since the turn of the millennium. This figure includes share buybacks, cash mergers and acquisitions activity, and equity issuance.

In the year 2023, corporations emerged as net buyers of $565 billion worth of U.S. equities, marking it as the most robust year since 2018. Looking ahead, Goldman Sachs predicts this figure to climb to $625 billion in 2024.

This uptick is attributed to an anticipated 8% growth in earnings per share for the S&P 500. However, alongside this growth, the bullish market sentiment is expected to fuel a resurgence in initial public offerings (IPOs), leading to an increase in equity issuance.

Despite these optimistic projections, there are other factors to consider that may impact the supply of equities in 2024.

According to Goldman Sachs’ analysis, influences such as a robust U.S. dollar and uncertainties surrounding the Presidential election could prompt foreign investors to divest, potentially resulting in a net sale of $50 billion worth of U.S. shares.

The movement of pension funds towards bonds and the redemption of mutual funds are anticipated to heighten selling pressures in the market. Specifically, pension funds are projected to sell a net amount of $325 billion, while mutual funds are expected to offload $300 billion worth of stocks.

Despite these anticipated market dynamics, Goldman Sachs highlights a notable shift in demand dynamics: U.S. households are transitioning from being net sellers to becoming net buyers of U.S. equities.

Goldman Sachs notes that the combination of the prospect of Federal Reserve easing and strong economic growth is likely to incentivize households to reallocate their funds from money markets to stocks.

This transition assumes particular significance given the current record-high level of $3.8 trillion in U.S. money market assets under management by households.

Although some may argue that households’ already substantial allocations to stocks could curb additional equity purchases, Goldman Sachs asserts that historical evidence contradicts this viewpoint.

U.S. stock-index futures are edging up slightly as benchmark Treasury yields retreat, concurrent with a strengthening dollar. Meanwhile, oil prices are on the rise, and gold is holding steady at around $2,170 an ounce.

A $925 Billion Incentive for Investors to Anticipate a Stock Rally in 2024
Jerome Powell, Vice Chair for Supervision Michael Barr

In terms of news, no significant U.S. economic data is anticipated on Friday. Nevertheless, there are several Federal Reserve officials slated to address audiences, including Chair Jerome Powell, Vice Chair for Supervision Michael Barr, and Atlanta Fed President Raphael Bostic.

The premarket trading scene sees FedEx shares skyrocketing by nearly 13% after the company revised its 2024 guidance upward. Conversely, Lululemon Athletica’s stock is taking an 11% hit after providing conservative guidance, despite surpassing analysts’ expectations for revenue and earnings.

Tesla’s stock is down 3% on reports of decreased production in China due to sluggish sales growth. Similarly, Nike shares are experiencing a nearly 7% drop, which is casting a shadow on competitors like Adidas and Puma, following a disappointing earnings call.

In Japan, consumer prices, excluding fresh food, surged by 2.8% in the year up to February. This milestone marks the 23rd consecutive month where inflation has either matched or surpassed the Bank of Japan’s 2% target.

Moving on, KKR’s setback of a $1.7 billion investment in bikes stands out as a stark reminder of the risks inherent in such endeavors.

Concurrently, a CEO’s unconventional approach to tackling corporate hurdles underscores the potential efficacy of leadership purges in navigating challenges within organizations. Moreover, the fallout from India’s ban on TikTok is under scrutiny, prompting contemplation on the broader implications of governmental actions of this nature.

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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