US stocks are expected to welcome the "Davis Double" in 2024! Pro UltrPro Shrt S&Pro 500 is expected to rise by 30%.

Zhitong App has learned that Tom Lee, the research director of financial market research firm Fundstrat, recently released a report stating that if the expected price-to-earnings ratio expands in sync with the overall profits of the S&P 500 index, the S&P 500 index could potentially soar by about 30% by 2024. At the same time, the research director also predicted that US inflation will continue to accelerate downward, and the Federal Reserve will eventually cut interest rates significantly.

Tom Lee's prediction for the US stock market in 2023 can be described as "extremely accurate". He previously predicted that the S&P 500 index would soar by more than 20% for the whole of 2023, reaching around 4750 points by the end of the year. The benchmark index closed at around 4,769 points at the end of last year, falling short of Tom Lee's target expectation by less than 1%. In contrast, the pessimistic predictions of major financial institutions on Wall Street such as Goldman Sachs, Morgan Stanley, and JPMorgan Chase were completely wrong, and their expectations were completely contradicted by the "bull market" in the US stock market in 2023.

Tom Lee has always been one of the most optimistic strategists on Wall Street. His benchmark forecast data shows that by the end of 2024, the S&P 500 index will rise to 5200 points, which means that the benchmark index will increase by 9% from its current level.

Tom Lee's forecast data is mainly based on the expectation of a warming interest rate cut by the Federal Reserve and inflation "falling like a rock," just as he previously predicted. These factors working together are likely to drive the US stock market higher in 2024.

Tom Lee said in an interview last week: "Consumers will realize that the rate of price increases is slowing down." He added that it seems "very likely" that the inflation rate will drop to 2% in 2024.

"The possibility of a double-digit increase exceeds 50%," Tom Lee said when discussing the potential upside of the S&P 500 index in 2024, even considering that the stock market has already achieved a double-digit "bull market increase" in 2023.

He pointed out that the S&P 500 index has actually had opportunities to achieve double-digit gains in more than 50% of the historical benchmark periods, and pointed out that the US stock market and the long-term US Treasury bond yields have been closely related to each other for a century.

Tom Lee said that since 1900, when the 10-year US Treasury bond yield hovered between 3% and 4%, the overall return of the US stock market is highly likely to reach double digits.

Tom Lee cited historical data, stating that in the past 65% of trading periods, when the US Treasury bond yield traded in this range, the overall price-to-earnings ratio (PE) of the S&P 500 index exceeded 18x. Tom Lee also stated that in more than 50% of trading periods, the price-to-earnings ratio of the S&P 500 index exceeded 20x.

In the past few weeks, due to the increasing expectations of a rate cut by the Federal Reserve, US Treasury bond yields have fallen into this golden range. Tom Lee said that although the target stock price of 5200 points was set under the assumption that the stock price-to-earnings ratio remains unchanged, if the expected price-to-earnings ratio of the S&P 500 index reaches 20x by the end of 2024, it means that the benchmark index of the US stock market, the S&P 500 index, will rise by about 30% this year. The baseline expectation is higher than the institution's 5200-point expectation. However, this aggressive expectation is based on the assumption that the overall earnings per share of S&P 500 index component companies will grow by about 10%, which is the "Davis Double-Click" under the joint expansion of stock market valuation and profitability.

Expected data compiled by Factset shows that Wall Street strategists generally expect the overall profits of S&P 500 index component stocks to increase by about 11.5% in 2024.

Goldman Sachs, a major Wall Street bank, released a report in December stating that it expects the S&P 500 index to reach 5100 points by the end of 2024. Goldman Sachs' strategists raised their forecast by nearly 9% from the mid-November level of 4700 points. Like their Wall Street counterparts such as Bank of America and Oppenheimer, Goldman Sachs expects the index to reach a new high in 2024.

John Stoltzfus, Chief Strategist at Oppenheimer, predicts that the S&P 500 index will reach a record high of 5200 points in 2024. Stoltzfus correctly predicted this year's rise and, like Tom Lee from Fundstrat, holds the most optimistic view of Wall Street's prospects for 2024.

Goldman Sachs points out that despite the sharp rise in US stocks, there is still a large amount of money that has not entered the stock market. Previously, as interest rates rose, $1.4 trillion flowed into money market funds in 2023, far exceeding the $95 billion flowing into the US stock market. Goldman Sachs said, "As interest rates begin to decline, investors may redirect some of their cash into the stock market."