Why the S&P 500 keeps crushing record highs in 2024

Feb 8, 2024
  • The S&P 500 hovered near the key 5,000-mark on Thursday.
  • UBS strategists said stocks could climb further in a “Goldilocks” economic scenario.
  • Recent economic data has been stronger than expected and inflation continues to cool, which will support stocks.

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Stocks are coming off a banner year and have shown no sign of slowing down.

With the S&P 500 hovering near the 5,000 milestone, UBS strategists said they expect that strength to continue in the months ahead. The index is up more than 5% over the last five weeks, notching a string of all-time highs so far this year.

In the Swiss bank’s view, the rally has been well-supported by recent data and a favorable macro landscape.

“We also see the potential for further gains in the event of a “Goldilocks” economic outcome, in which US growth is stronger than expected and tame inflation allows the Federal Reserve to cut rates aggressively,” UBS strategists wrote in a note Thursday. 

Markets are pricing in aggressive interest rate cuts from the central bank this year, and UBS believes that recent data supports that easing path as well as an optimistic stock market outlook.

Here are the three big reasons why stocks have crushed record after record.

Upbeat economic data

Labor market strength — most recently on display in the red-hot January jobs report — has topped even the most optimistic expectations and pushed back on recession calls that just a year ago seemed to be the consensus.

Similarly, GDP data showed the US economy grew at an annualized rate of 3.3% in the fourth quarter last year, above the expected 2% growth. Meanwhile, according to Treasury research cited by UBS, US consumers remain strong, with an average real spending power of about $1,400 more than pre-pandemic levels.

“Such releases have added to the potential that growth could remain close to, or even above, the sustainable trend rate — a key ingredient of a ‘Goldilocks’ outcome,” UBS strategists said. 

Inflation trending lower

Federal Reserve officials have said for months that they want to see convincing evidence that prices are cooling before cutting interest rates.

In UBS’s view, inflation is indeed moving in the right direction toward the Fed’s 2% target, and the January CPI report should soon shed more light on the trend. The next inflation reading will roll out on Tuesday, February 13. 

Strong earnings

More than three-quarters of S&P 500 companies have reported earnings, and most are beating estimates, FactSet data shows. 

“A positive fourth-quarter earnings season so far has reinforced our view that US profit growth is rebounding after a near-flat outcome for 2023 overall,” the strategists said.

UBS expects earnings per share for S&P 500 names to grow 8% in 2024, and 6% in 2025, with particular upside for AI-fueled tech earnings. Not only that, but small-cap stocks could soon outpace the broader market on account of the “Goldilocks” economic scenario.

“[O]ur base case remains for a soft landing for the US economy, with the S&P 500 ending the year around current levels,” the strategists said. “However, recent economic data have highlighted the potential for a period of continued stronger growth, tame inflation, and swifter monetary easing. In this event, we believe the S&P 500 has the potential to rise to around 5,300 this year.”

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