Wall Street Predicts Stock Market Returns to Crush Long-Term Average in 2024

💡 Wall Street analysts forecast a significant underperformance in the stock market's returns next year.

The Federal Reserve delivered a hawkish surprise on Wednesday, signaling that interest rate cuts remain further away than markets had hoped. Fed Chair Jerome Powell told reporters that the central bank needs "greater confidence" that inflation is sustainably declining before it will consider easing policy.

The 10-year Treasury yield surged to 4.8% in the aftermath, its highest level since October 2023. $TLT fell sharply as bond traders repriced the timing of the first cut from March to June.

Stock Market Returns to Crush Long-Term Average

A recent report from Wall Street analysts suggests that the stock market's return will significantly underperform its long-term average in the next year. According to the forecast, the S&P 500's return is expected to be around 3%, which is lower than the long-term average of 8%. This underperformance is attributed to the ongoing high interest rates and the potential for a recession in 2024.

Interest Rates to Remain Elevated

The Federal Reserve's decision to keep interest rates high is a major contributor to the expected underperformance in the stock market's returns. With the fed funds rate currently at 4.5%, the central bank is trying to curb inflation by limiting borrowing costs. This move is likely to continue in 2024, with some analysts predicting that the fed funds rate could reach 5% by the end of the year.

Implications for Investors

The implications of this forecast are significant for investors. With the stock market's return expected to be lower than its long-term average, investors may need to reassess their investment strategies. This could involve increasing their exposure to bonds or other fixed-income assets to mitigate the risks associated with the stock market.

What It Means for Investors