The seven tech giants lead the US stock market in 2023, while Wall Street's forecasts for 2024 are divided

2023 US stock market performance once again shocked the market. The Nasdaq Composite index rose a total of 40.77%, the S&P 500 increased by 22.60%, and the Dow Jones Industrial Average climbed 11.90%, breaking the 37,000-point record high. This achievement is largely attributable to the strong performance of the seven tech giants led by TSLA, META, and AMZN, which contributed about three-quarters of the full-year gain of the S&P 500 index.

In comparison, Wall Street’s major institutions’ predictions at the beginning of the year seem lackluster. At that time, Deutsche Bank expected the S&P 500 to end the year at 4,500 points, Wells Fargo set a range of 4,300-4,500 points, JPMorgan forecasted 4,200 points, and Goldman Sachs and Bank of America both estimated 4,000 points. The most conservative forecasts were even below 3,900 points. The significant deviation between these predictions and the actual trend highlights the market’s complexity and unpredictability.

The Five-Stage Evolution Path of the US Stock Market in 2023

Stage 1: Q1 Artificial Intelligence Wave Sparks Rally

OpenAI’s ChatGPT ignited a global AIGC craze, with tech giants like Microsoft and Meta joining the large language model competition. By the end of the first quarter, the Nasdaq recorded its best quarterly performance since 2020, with the seven tech giants each gaining over 20% in a single quarter.

Stage 2: March Bank Crisis Disrupts Upward Momentum

The Silicon Valley Bank, Signature Bank, and Credit Suisse crises erupted, triggering market panic. Some analysts believed the tech stock rally was too aggressive. Morgan Stanley’s chief strategist Michael Wilson warned of sustainability risks. Additionally, discussions about AI risks heated up, with the Future of Life Institute issuing a pause on large AI research initiatives, signed by thousands of experts including Turing Award winners Yoshua Bengio and Elon Musk.

Stage 3: Q2 Inflation Peaking Expectations Boost Confidence

Inflation data turned positive, corporate earnings improved, and the Federal Reserve’s rate cut expectations increased, driving gains across all sectors of the S&P 500, led by technology, communication services, and consumer discretionary. Goldman Sachs’ chief equity strategist Peter Oppenheimer stated that concerns about a recession had significantly eased.

Stage 4: Q3 to October High-Interest Rate Environment Constraints

US Treasury yields rose to historic highs, increasing financing costs and lowering corporate valuations. Middle East geopolitical risks and poor quarterly performance of some heavyweight tech stocks led to market corrections, raising doubts about the sustainability of the rally driven by a few stocks.

Stage 5: Q4 Soft Landing Expectations Spark Rebound

Inflation generally slowed, employment data remained solid, and the Federal Reserve paused rate hikes while signaling three rate cuts in 2024. Treasury Secretary Yellen stated that bringing inflation back to target would not be particularly difficult, and the US economy is expected to achieve a soft landing. This stage propelled the US stock market into its final sprint of the year.

Diversified Outlook for the US Stock Market in 2024

Entering 2024, Wall Street institutions’ year-end targets for the S&P 500 show varied outlooks. JPMorgan predicts 4,200 points, taking a cautious stance amid expectations of economic slowdown and credit tightening; Morgan Stanley estimates 4,500 points, optimistic about corporate profit recovery momentum; Wells Fargo sets a target of 4,625 points, believing increased volatility will limit gains; Goldman Sachs forecasts 4,700 points, expecting a moderate US economic expansion; Barclays gives a target of 5,000 points, judging that macro uncertainties have significantly diminished; Deutsche Bank is the most optimistic, predicting 5,100 points, believing current valuations still have room for growth.

The strong performance of the US stock market in 2023 has laid a foundation for 2024. Against the backdrop of continued deepening applications of generative AI, technological innovation is expected to remain a core driver of economic growth. Bob O’Donnell, President of TECHnaanalysis, predicts that 2024 will be the year when generative AI truly becomes widespread. Goldman Sachs also states that AI technology will profoundly impact economic growth, productivity, and the international competitive landscape.

However, it is important to note that the US stock market in 2024 still faces multiple risks: political uncertainties surrounding the US presidential election, potential economic recession risks, and geopolitical tensions, all of which could trigger chain reactions. In the context of the global rate hike cycle nearing its end and the gradual realization of rate cut expectations, investors need to balance optimistic outlooks with risk management.