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Wall Street 2024 Forecasts versus Technical Projections

Most Wall Street strategists failed to predict the stock-market rally for this year (2023). Based on the 16 Wall Street Strategists, the average forecast for year-end 2023 for SPX was 4,045. The median was 4,000, and the mode was 3,900 and 4,000.


Although there is still one month before the end of the year, with SPX trading at 4,554.89 (11/28/23), this would imply Wall Street strategists missed the median SPX target by 12%.


More forecasts will arrive in the next few weeks. The current list of the Wall Street SPX year-end 2024 forecasts, ranked in descending order are Deutsche Bank (5,100), BMO Capital Markets (5,100), RBC Capital Markets (5,000), Bank of America (5,000), Barclays (4,800), Goldman Sachs (4,700), UBS Global Wealth Management (4,700), Wells Fargo Securities (4,625), and Morgan Stanley (4,500).


The 2024 forecast suggests an SPX average of 4,836 and a median of 4,800.


Predicting where SPX will end in 2024 will again be challenging. Wall Street strategists are bracing for below-average returns after missing the 2023 rally. However, a few bullish SPX forecasts imply advances of 9-12% from the SPX close of 4,554.89.


Most bullish forecasts cite favorable market sentiments, less geopolitical risks, tame inflation, lower interest rates, and less restrictive monetary policies.


Even the bearish forecasts are more favorable this year, with Morgan Stanley predicting only a 1.2% decline from the SPX closing price on 11/28/23. Defensive strategists cite poor market breadth, concentrated returns from mega-cap technology stocks (i.e., Magnificent Seven), and the fear of a recession.


Since the estimates from Wall Street strategists suggest an average SPX target of 4,836 for the end of 2024, this implies an advance of only 6.17% from the 11/28/23 closing price.


With the bulk of Wall Street strategists forecasting flat to single-digit returns next year, history suggests the opposite. Wall Street may be overly bearish for 2024 if they expect SPX returns to be 0% to 5% since the average yearly return for SPX over the past 35 years has been closer to 8%.


Another crucial piece of information regarding SPX returns - the historical distribution showed SPX tends to advance 10% or more than half of the time.


We turn to pattern recognition, Fibonacci retracements, and extensions to forecast SPX targets. Fibonacci retracements can help identify pivotal supports and resistances. Supports tend to occur near 38.2%, 50%, and 61.8% retracements. Fibonacci extensions can identify SPX targets. The most popular Fibonacci extensions are 138.2 and 161.8.


The general rules are as follows: A successful test of the 50%, 61.8%, or 78.6% retracement level will often lead to a rally toward the 161.8% Fibonacci extension. The caveat to the call is clearing the pivot high (i.e., Jan 2022 high) is needed to confirm the projection. In contrast, a 38.2% retracement will often result in a rally toward the 138.20% Fibonacci extension.


The 10/13/22 market low at 3,491.58 (10/13/22) hints at a successful test of the 50% retracement (3,505.24) from the Mar 2020 to Jan 2022 rally.


A subsequent breakout above the reaction high of 4,818.62 (1/4/22) renders SPX targets to 5,110.36 (Jul 2023 technical base breakout above 4,607.07) and above 5,158.98 (2022 h/s bottom breakout above 4,325.28), 6,145.66 (2021 base breakout above 4,818.62 ) and 6,441.96 (1.618% Fibonacci extension).


Based on the historical distribution of SPX returns showing stocks tend to advance 10% or more half of the time, it is reasonable to expect SPX to trend upwards to 5,110-5,159 in 2024 or the technical projections based on two (2) near-to-medium term breakouts (i.e., Jul 2023 technical base breakout above 4,607.07 and the 2022 head/shoulders bottom breakout above 4,325.28). Reaching these technical targets would imply a respectable 12-13% return from today’s SPX closing price of 4,554.89.


The other two technical projections of 6,145.66 and 6,441.96, respectively, or 35-41% gains, may be too optimistic for next year. Achieving these technical targets would require an ideal macro environment (low interest rates, low inflation, soft landing, etc.). It is reasonable to expect these projections to occur in 2025 or possibly during the 2026 mid-term elections.


If it turns out to be another choppy year in 2024, risk management may again be the key to outperforming.


On a near-term basis, the 50-day ma (4,348.78) and the 200-day ma (4,279.50) provide pivotal initial support. Secondary support is also visible at 4,104-4,114.5 (Feb 2022 and Oct 2023 lows).


Violation here warns of a retest of 3,809/3,764.5 (Mar 2023 and Dec 2022 lows) and 3,491.5-3,505 (10/13/22 mid-term election year bottom and the 50% retracement from Jan 2022 to Oct 2022 decline).


A breakdown reaffirms the continuation of the Jan 2022 cyclical bear and the next selloff to 3,195.28 (61.8% retracement) and below this 2,811.78 ( 76.4% retracement).


Chart courtesy of StockCharts.com

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