Will the Stock Market Rally Continue in 2024?
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What drove the stock market rally at the end of 2023?
Here's your Money Briefing for Friday, December 29th. I'm J.R. Whelan for The Wall Street Journal. We're wrapping up our look at how your finances and careers were shaped by economic forces in 2023. And on the final trading day of the year, we put the spotlight on the stock market.
The U.S. economy is actually expected to grow about six times as fast as the Fed predicted at the beginning of the year. So soft landing really was what we saw. And that's been great for the stock market because it's shown that the Fed is able to get inflation back down without causing damage to the rest of the economy.
Dionne Raboen, host of WSJ's Take on the Week, will join us to discuss what to expect in 2024. After the break.
2023 ended on a high note as stocks rallied in response to the prospect for the Federal Reserve lowering interest rates. But what can we expect in 2024? Dionne Raboan, host of WSJ's Take on the Week podcast, joins me. So, Dionne, what surprised you about the stock market in 2023?
Everybody was surprised by what happened in the stock market in 2023. I did a story at the end of 2022 about how just about every major investment bank on Wall Street was predicting that we'd had a recession this year. Some asset managers thought that the stock market would rally anyway, that the Federal Reserve would start cutting rates and that would lead to Some decent returns for the market, but I don't think anyone saw the blowout returns we saw this year. The NASDAQ rising around 40% this year, really recouping all of its 2022 losses. The S&P 500 really outperforming, rising more than 20%. And the rise of the Magnificent Seven, right? These seven big name tech stocks that really drove things, delivering huge returns for companies like Meta and NVIDIA,
over 200% returns this year. So a lot of folks could have been bullish coming into the year thinking, okay, this will be a decent year for stocks. Maybe it'll be an average year for stocks, but I don't think anyone saw the blowout year that we had this year coming.
Now, along with stocks, a lot of eyes are on the economy, and we've been hearing the term soft landing a lot. What does that mean and why is it important to the stock market?
A soft landing means that the Federal Reserve can get inflation down to around its target without causing too much damage to the labor market or the overall economy. Inflation reached a high of over 9% in summer of 2022, and the Fed really sprung into action trying to get inflation down. back towards its 2% target. And that's what 2023 has really been all about. So the idea of a soft landing is inflation is the plane that's way up in the air, and you want to get it back down to its 2% target without the damage of a hard landing, which would be damage to the labor market, damage to the economy, growth slows, hiring slows, and maybe even turns negative and you have a recession. That's really what we have seen for 2023 is as inflation has come back down, it's now closer to 3%, not quite at two, but much closer.
So inflation's come down and we have seen continued strength in the labor market. We saw the best growth during the third quarter that we had seen in years. The U.S. economy is actually expected to grow about six times as fast as the Fed predicted at the beginning of the year.
Who is Dion Rabouin and why is she discussing 2024 market outlooks?
So soft landing really was what we saw. And that's been great for the stock market because it's shown that the Fed is able to get inflation back down without causing damage to the rest of the economy.
In the big three markets, the Dow, the S&P 500, and the Nasdaq each reached 52-week highs in December. Do economists see that rally continuing in 2024?
Economists are actually a bit unsure if the rally can continue, but I will tell you that stock investors, asset managers, and strategists are pretty bullish. You've got some price targets, folks expecting new all time highs for the S&P 500 in 2024, potentially reaching as high as 5000, 5500. There's a lot of enthusiasm when it comes to the market side. Economists who study what's going on in labor markets, what's happening in the real economy, they're a bit more cautious right now.
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