Morgan Stanley Predicts Richer Opportunity in Stock Market for Discerning Investors in 2024
According to analysts at Morgan Stanley, the stock market is poised to offer a “richer opportunity” for investors in 2024. Despite relatively muted stock market upside predictions for the coming year, there are still gains to be had for discerning investors.
The bank’s 2024 equities outlook indicates that analysts see the S&P 500 ending 2024 at the 4,500 mark, a modest 2% increase over the current 4,400 level. However, this forecast is not necessarily negative news.
Analysts at Morgan Stanley have noted that stock-specific risk remains elevated, which they believe should support a stock-picking environment and indicate a richer opportunity set beneath the surface of the market. They assert that valuations are more compelling at the stock-specific level than at the cap-weighted index level.
The predictions are based on a unique combination of micro and macro factors, including weaker corporate earnings and a stronger-than-expected economy. While the average stock has not performed well this year, certain segments of the market show potential for higher returns.
According to the analysts, the rewards for investors lie in two areas of the market: defensive growth stocks (such as healthcare, utilities, and staples) and late-cycle cyclicals (including industrials and energy).
In the short term, stocks face headwinds from a market that has seen substantial gains in the technology sector but not much elsewhere. This reflects challenging earnings dynamics, with just seven stocks contributing the most to the S&P 500’s gains this year, making it the “narrowest on record.”
Despite these challenges, Morgan Stanley remains optimistic about a sustainable earnings recovery in 2024 and ultimately forecasts a 7% earnings growth next year.
Analysts have posed a critical question for investors to consider: whether the current leaders in the market can elevate the laggards to their level of performance, or if the laggards will eventually overpower the leaders in this challenging macro environment.
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