The S&P 500 could see double-digit gains again in 2024, RBC says

The surprising rally on Wall Street in 2023 should have enough momentum to continue climbing once the calendar turns, according RBC Capital Markets Strategist Lori Calvasina set a 2024 year-end target of 5,000 for the S & P 500, which is 10% above where the broad market index closed on Tuesday. It is higher still than RBC's current target of 4,250 for 2023, according to CNBC Market Strategist Survey , which is on track to prove too pessimistic. "While the November rally has likely pulled forward some of 2024's gains, we remain constructive on the US equity market in the year ahead. Our valuation and sentiment work are sending constructive signals, partially offset by headwinds from a sluggish economy and uncertainty around the 2024 Presidential election. Our work also suggests that the greater appeal of bonds may end up being a dampener of US equity market returns but not necessarily a derailer of them," Calvasina said in a note to clients. .SPX YTD mountain The S & P 500 has already broken above 4,500. Calvasina was not the only Wall Street strategist who was caught off guard by the market rally this year. The U.S. economy and earnings growth have both held up better than many projections from 12 months ago, and the excitement around artificial intelligence fueled rallies for several large tech stocks that helped push the S & P 500 higher. RBC projects earnings per share for the S & P 500 will rise about 4% in 2024, and notes that the economy could be surprisingly resilient once again. "The possibility that the economy surprises to the upside again in 2024 is an upside risk to our S & P 500 target price. On the flip side, if something more than a mild/brief recession does occur, stock prices are at risk of a sizable fall. That being said, we continue to have doubts that a recession must necessarily be priced into the US equity market," Calvasina said. While a low but still positive rate of economic growth could keep the market rally from broadening out in 2024, small cap stocks were "intriguing" heading into the new year, she said. "We don't think concentration alone sends any kind of market signal. When market cap concentration has spiked in the past, it's often been associated with periods of nervousness in the US equity market. But sometimes it comes before a crisis, sometimes it comes in the middle, and sometimes it comes at the end," the note said.