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After an uncertain start to the year, the US stock markets ended 2023 on a high note, with two of the three major stock indices closing at record highs. If history is any indication of how the previous year's trend affects the following year's performance, most analysts believe that the solid gains will likely extend into 2024, too. The strong show, which typically started in the second half of 2023, was led by the technology sector in the backdrop of recession worries, geopolitical tensions, and surging Treasury yields from multi-decade high-interest rates.
At the beginning of 2023, few analysts expected the US markets to perform as solidly as they did toward the end of the year. Soaring inflation, high-interest rates, a regional banking crisis, recession fears, massive drawdown in the value of bond portfolios, swelling losses in cryptocurrency investments, and the Russia-Ukraine war kept investors on edge during the first half of the year. However, as the year progressed, it became clear that inflation was steadily subsiding, even as the tight labor market ensured solid consumer spending, driving US economic growth. When the closing bell rang on Friday, the last trading day for 2023, the S&P 500 had gained by 24.23% for the year to settle at 4,769.83, within striking distance of its record close at 4,796.56 and an all-time high of 4,808.93 set in 2021. On the other hand, the 30-share Dow Jones Industrial Average rose 13.71% to close at 37,689.54, while the Nasdaq 100 was the top performer among the three stock benchmarks in 2023, ending higher by 53.81% at 16,825.93.
Sectorwise performance and the top stocks in 2023
The Nasdaq 100 rallied more than 50% in 2023, clearly beating the other two major indices by a wide margin. So, it shouldn't be surprising that the tech industry was the top performer, surging by 56.4%, followed by communication services at 54.4%. Eight of the eleven sectors in the S&P 500 generated positive returns in 2023, while three sectors- consumer staples, energy, and utilities, ended with losses.
Source: MarketWatch
The ten top-performing stocks in 2023 were led by chipmaker Nvidia (NVDA), which jumped 239% after the company unveiled a range of products, further boosting its foothold in the artificial intelligence (AI) space. The other top performers included Meta Platforms Inc., Royal Caribbean Group, Builders Firstsource Inc., Uber Technologies Inc., Carnival Corp Advanced Micro Devices Inc., PulteGroup Inc., Palo Alto Networks, and Tesla Inc.
Meanwhile, Broadcom Inc. recorded a massive rally in December, driving its stock up by more than 20% month-on-month, lifting its annual performance by 100% after the semiconductor giant reported solid fiscal fourth-quarter earnings. According to analysts, the company's acquisition of VMware and unveiling of Artificial Intelligence (AI) networking chips will likely double its revenue in 2024.
Top-performing S&P 500 stocks in 2023
Source: MarketWatch
Market outlook for 2024
Most economists and analysts expect the US stock markets to extend last year's bullish run. The analysis is based on historical stock market trends, showing that a solid annual performance will extend into the following year, primarily driven by the previous year's momentum. LPL Research analyzed data as far back as 1950, which showed that whenever the S&P 500 rose by 20% in a year, it was followed by an average 10% advance the following year 80% of the time.
On the economic front, consumer inflation is subsiding, job growth remains solid, and consumer spending is stable, all of which are positive for stocks. Besides, markets expect the Federal Reserve to start cutting interest rates in the second quarter of 2024, driving investors from fixed-income securities to risky assets, such as equities. According to the CME FedWatch Tool, traders are pricing in a more than 50% probability of five rate cuts in 2024, bringing the benchmark Fed Funds rate to 4.00%-4.25% by the end of the year.
Source: cmegroup website
According to Forbes Advisor, analysts expect the S&P 500 constituents will report an earnings growth of 11.6% in 2024, with the average price target on the benchmark index at 5,029, a 5.45% gain from the December 29th close.
Going into individual stocks that analysts are eyeing in 2024, Nvidia is once again the top pick by most analysts due to another record outlook for the fiscal fourth quarter of 2024 and the rest of this year. Among the other stocks with the highest potential on analysts' radar are-
Source: MarketWatch
Technical View
E-Mini Dow Jones futures (YM)
The E-Mini Dow Jones futures point to a negative open ahead of the regular trading session on the first day of the year after closing at 38,012 on Friday, unchanged from the previous session. However, the primary trend remains bullish, with the gains likely to extend to 40,100-40,600 over the medium to long term. The near-term resistance is at 38,100, and a close above should help the index futures regain bullish momentum, driving it above the 40k mark. The long-term support is above 33,250, formed by the trendline connecting the lows of October 2022 and 2023, and as long as the Dow futures remain above this level, the primary uptrend is intact.
However, the index futures are forming a double-top bearish reversal pattern, with the neckline at 37,390. A close below the level could push it toward 36,700-36,800, the support level represented by the 2021 highs.
Trading Strategy
Initiate long positions on the E-Mini Dow Jones futures if it closes above 38,100. Place a stop loss at 37,900 and exit as the index futures approach 40,000. Ensure that trailing stops are placed on your long trades. You can also go long if the index futures slide to 36,700-36,800, with a stop loss at 36,500 for a target of 38,000-38,100.
Conversely, swing traders can initiate short positions if the Dow futures close below 37,390. Have a stop loss at 38,200 for a target of 36,800.
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S&P 500 E-Mini futures (ES)
The S&P 500 E-Mini futures closed at 4,820 on Friday, sliding 0.25% for the session. The index futures began trading at 4,818 on the first trading day of 2024 before slipping below short-term support at 4,808 ahead of the opening bell. The bullish primary trend is intact, with the long-term support above 4,250 and the resistance in the 5,450-5,500 zone, followed by 6,300-6,400.
Over the past few sessions, the S&P 500 futures repeatedly pulled back from around the 4,800-4,830 levels, resulting in a double-top reversal pattern, with near-term support at 4,750. A close below the level could lead to further losses, with the benchmark index futures likely to slide toward 4,580-4,660. On the upside, a close above 4,830 could lead to a short-term rally, with the index futures targeting 4,950.
Trading Strategy
Initiate long positions if the S&P 500 futures close above 4,830 or break 4,850, with a stop loss at 4,780 for a target of 4,950. Long-term investors can continue holding the index futures for bigger targets of 5,450-5,500, followed by 6,300-6,400. Ensure that trailing stops are placed on your long-term trades. Long trades can also be entered if the S&P 500 futures slide toward the support zone at 4,580-4,600. Place a stop loss at 4,540 and exit as the index futures approach 4,800.
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Nasdaq 100 E-Mini futures (ES)
The Nasdaq 100 E-Mini futures ended Friday's session at 17,023.50, down 0.39% for the day. The index futures opened slightly lower at 17,019 on the first trading day of 2024 and have since dropped more than a percent ahead of the opening bell. The long-term uptrend remains intact, with support at 15,100 and resistance at 22,300.
In the near term, prices will likely approach the support zone at 16,660-16,770, which could be good levels to enter fresh long positions. However, if the zone is taken out, the declines could extend further to 15,900-16,100. On the upside, if the Nasdaq 100 e-mini futures close above the recent highs, the gains could extend to 17,450.
Trading Strategy
Swing traders can initiate long positions if the index futures surge above 17,200 with a stop loss at 17,050 for a target of 17,450. On the downside, if the Nasdaq 100 e-mini futures close below 16,650 or break 16,600, enter short positions with a stop and reverse at 16,800 for a target of 16,100-16,200. Ensure that trailing stops are placed on your short trades.
Long-term investors can go long if the index futures close above 17,450. Place a stop loss at 17,000 and exit as the futures approach 22,000. Long positions can also be initiated if the Nasdaq 100 futures slide to 16,050-16,100. Place stops at 15,700 for a profit target of 17,100. Ensure to trail your profits.
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