Next Year US Stock Market Hits All-Time High... S&P 500 Surpasses 4800 Level

There is a forecast that the U.S. stock market will surpass the peak reached during the COVID-19 pandemic, which was the greatest boom in history, next year. However, as the rally of the mega-cap tech stocks known as the 'Magnificent 7,' which led this year's bull market, comes to an end, the extent of the rise is expected to be limited.

On the 10th (local time), Bloomberg News conducted a Market Live Pulse survey targeting its terminal and news subscribers, and the result showed that the representative U.S. stock index, the S&P 500, is expected to rise to 4,808 points next year. This is more than a 4% increase from the current level, surpassing the previous all-time high of 4,797 points (January 2021). The 10-year U.S. Treasury yield, which fluctuated above 5% last month, is expected to fall to 3.8%. The Market Live Pulse survey was conducted from the 4th to the 8th and received 518 responses.

Anika Gupta, a macroeconomic researcher at WisdomTree, explained, "The U.S. stock market's solo bull run will remain firm," adding, "Favorable economic conditions and improved corporate earnings estimates compared to other major markets such as Europe and China, along with attractive valuations, will act as drivers for the rise."

[Image source=Reuters Yonhap News]

Among the respondents, 33% cited weak consumer spending as the biggest threat to the stock market next year. A similar proportion (31%) pointed to a hard landing of the U.S. economy as a risk factor. Twenty-five percent said inflationary pressures could re-emerge. More than two-thirds of respondents believed the U.S. economy is unlikely to enter a recession next year and expected the Federal Reserve (Fed) to begin cutting interest rates before July.

Experts from Wall Street, Deutsche Bank, RBC Capital Markets, and others also said that the S&P 500 has already priced in the negative effects of high interest rates and predicted that U.S. stocks will reach record highs next year. However, they expected the gains to fall short of this year's 20% increase. Bloomberg noted, "The average annual gain in years when the S&P 500 posted positive returns was 19%, so the 4% rise forecast is below average."

There is also a forecast that the rally of the seven major big-tech stocks, the Magnificent 7, which drove this year's rapid rise in the U.S. stock market, is unlikely to continue into next year. The Magnificent 7 (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta), which had sharply declined last year due to valuation pressures from the Fed's aggressive rate hikes, saw a rally this year fueled by expectations for the artificial intelligence (AI) industry triggered by ChatGPT.

Microsoft, which led the AI industry alongside ChatGPT developer OpenAI, hit historic record highs, and Nvidia, the biggest beneficiary of AI semiconductors, saw its stock price rise by 125% this year. Shanti Kelemen, Chief Investment Officer (CIO) at M&G Wealth, said, "I do not expect the Magnificent 7's rally to continue long-term," pointing out, "There is greater potential in traditional industries that can improve productivity through AI adoption."