2024 U.S. Market Outlook

Transcript 1: U.S. Market Outlook: The Path to Normalization

Hello, this is Brian Belski – Chief Investment Strategist at BMO Capital Markets.

We recently published our 2024 Year Ahead Market Outlook, which is our 11th consecutive forecast on the US stock market on behalf of BMO.

As we expected, despite the doomsayers to the contrary, 2023 exhibited surprisingly positive equity returns – defining a period of stability and fortitude that ultimately represented the start of a much needed and very positive normalization process – one that we believe should follow through into 2024, not to mention the next three to five years.

So what does normalization actually mean and is our secular bull market theme for US stocks alive and well?

In our view, when it comes to the world of investing, a path to normalization encompasses a lot of things – including, but not limited to…stock market returns, earnings growth, valuation, interest rates, inflation and economic growth.

However, this process is not likely to occur overnight – with 2023 representing year one of a multi-year trend. Think of it more as a marathon than a sprint – especially given the momentum and reactionary-driven strategies of the past decade. While the concentrated returns in a handful of stocks in 2023 has been widely panned by many market observers, we continue to maintain that positive is still positive – with a broadening out of performance across all sectors, size and styles within US stocks representing the next phase of the normalization process – and a major part of what is likely to transpire in 2024.

With respect to our 20-25 year secular bull market call of the US – we believe the broader trend of normalization only accentuates the underpinnings of a secular bull, with the newest phase of the bull market actually originating in October of 2022 and reinforced with the fundamental and performance trends exhibited in 2023.

As such, our 2024 forecast for the S&P 500 Index year-end price target of 5,100 on earnings of $250 is a continuation of this thesis – and well within the historical average for stock market returns – especially during the second year of a renewed bull market cycle.

That being said, the noise quotient that investors will have to mute will likely be louder than ever, especially considering Presidential election year jitters – which our work shows are historically overblown and overemphasized by the way – to what we refer to as the “yeah-but bears” fervently lamenting their bear case for a recession for the fourth year in a row – one that has mysteriously yet to occur – and that higher for longer interest rates are the death mill of equities. For our part, we are investment strategists – and we prefer to stay in our lane and invest – as opposed to basing market calls and bottoms-up investment decisions on macro datapoints and forecasts that have been increasingly oppressive, let alone inaccurate, in our view.  In terms of sectors in 2024, we favor Financials and Technology; are neutral Communication Services, Discretionary, Health Care, Industrials, REITs and Utilities; while advising clients to underweight Consumer Staples, Energy and Materials. In terms of size and style – we want investors to think of it as – everything in moderation – owning equal parts large-, mid- and small-cap stocks – while also owning both value and growth together – thereby lacking a significant emphasis on any equity class in 2024.

Thanks so much for joining us – here’s to normalization and a continuation of the secular bull market in 2024.

Transcript 2: 2024 Canadian Market Outlook: Cooler Heads Prevail 2024

Hello, this is Brian Belski – Chief Investment Strategist at BMO Capital Markets

We recently published our 2024 Year Ahead Market Outlook, which includes our 11th consecutive forecast on the Canadian stock market on behalf of BMO.

After outperforming its neighbour to the south in 2022, Canadian stocks lagged the US by a wide margin in 2023. A combination of massive outperformance of US tech stocks, coupled with deep-seated fear and negativity surrounding Canadian banks and the perceived fears of recession, higher interest rates and a troubled housing market and consumer drove Canadian clients back into full blown Eeyore camp.  Translation = fear and negativity were the prevalent drivers of Canadian stocks in 2023, even though most, if not all, of the fears that bullied stocks and the economy never really materialized. As such, we believe common sense and cooler heads will ultimately prevail in 2024, with Canada following the US into normalization – including, but not limited to stock market returns, earnings growth, valuation, interest rates, inflation and economic growth over the next three to five years.

Furthermore, if and when bad news comes to fruition – we believe most, if not all, of the bad news has already been priced into Canadian stocks.

As such – sticking with the Winnie the Pooh theme – here comes Tigger – as we believe the Canadian stock market is THE contrarian play within developed markets in 2024.

Our 2024 forecast for the S&P/TSX Index year-end price target of 23,500 on earnings of $1,500 constitutes a decided snap-back year – and well within the historical average for stock market returns – only accentuating the return to normalization.

That being said, the noise quotient that investors will have to mute will likely be louder than ever, especially considering Presidential election year jitters stemming from the US – which our work shows are historically overblown and overemphasized by the way – to what we refer to as the “yeah-but bears” fervently lamenting their bear case for a recession for the fourth year in a row – one that has mysteriously yet to occur – and that higher for longer interest rates are the death mill of equities. For our part, we are investment strategists – and we prefer to stay in our lane and invest – as opposed to basing market calls and bottoms-up investment decisions on macro datapoints and forecasts that have been increasingly oppressive, let alone inaccurate.  In terms of sectors in 2024, we favour Communication Services, Consumer Discretionary,  Financials and Technology == Tech for growth and consistency, Communication Services, Discretionary and Financials are more contrarian – especially Financials where the conventional wisdom is the most negative in decades in our view. In terms of the other sectors, we are neutral Energy, Materials, REITs and Utilities while advising clients to underweight Consumer Staples, Industrials and Health Care. In terms of size – we want investors to think of it as – everything in moderation – owning equal parts large and small cap stocks – thereby lacking a significant emphasis on any equity class in 2024.

Thanks so much for joining us – here’s to normalization and a return to positive price performance for Canada in 2024.