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The stock market has exploded this year. What will happen in 2024?

After a dismal performance last year, the stock market has reached record highs in 2023.

The S&P 500 – the index followed by most people’s 401(k)s – is up nearly 25% this year on Wednesday.

The Dow Jones Industrial Average jumped 13%; while the tech-heavy Nasdaq rose 44%.

Looking ahead, a central question looms over Wall Street: will the good times continue?

This stellar performance is largely due to optimism about the prospects of a “soft landing”, in which inflation returns to normal levels while the economy avoids a recession, leading experts said in end-of-year reports. Investor enthusiasm for AI has also helped drive returns, they added.

Analysts differ widely, however, in their outlook for 2024, with some concerned that a potential slowdown could bludgeon markets, while others expect slow but steady growth that will send stock prices higher.

The US economy has recorded major successes this year, encouraging investors and rallying markets.

Inflation continued to fall after peaking at around 9% last summer, falling within a percentage point of the Fed’s target rate. Although hiring has slowed recently, it has remained robust.

Meanwhile, economic growth has accelerated. The U.S. economy grew at an annualized rate of 4.9% over the three months ending in September, more than doubling growth in the previous quarter, according to a government report released in October.

Progress on inflation prompted the Fed to make a historic announcement earlier this month: its intention to reverse its near-historic rate hikes with a series of cuts next year.

Savita Subramanian, head of U.S. equities and quantitative strategy at Bank of America Securities, told investors last month that the slowdown in price increases bodes well for markets regardless of the Fed’s actions. ‘next year.

“We are optimistic, not because we expect the Fed to cut rates, but because of what they have accomplished,” Subramanian said.

However, other analysts have warned that interest rates continue to pose a major risk for stocks, as a misstep could either send the economy into a slowdown or reignite a rapid rise in prices.

“We’ve postponed a recession this year,” Barry Bannister, a market strategist at wealth management firm Stifel, who has a cautious view of stock performance in 2024, told ABC News.

Policymakers face the difficult task of continuing to slow the economy and curb inflation while avoiding a downturn. At the same time, if authorities boost economic and trade growth, they risk a rebound in inflation as consumer demand increases, Bannister added.

“There are two extremes,” he says. “It’s either too hot or too cold, but not right.”

Another key driver of market gains this year has been the rise of artificial intelligence. Major stock indexes have attracted attention from investors optimistic about the benefits of new technology, especially in the first months of the year.

However, these gains have been concentrated primarily in a handful of tech giants, known as the Magnificent Seven: Alphabet, Amazon, Apple, Meta, Microsoft, Tesla and Nvidia.

Nvidia, a California-based chipmaker whose products help power artificial intelligence platforms like ChatGPT, might best sum up this phenomenon. The stock has soared nearly 240% this year on Wednesday.

Profits generated by the S&P 500 match a level of concentration last seen in the 1970s, Morgan Stanley said in a report released earlier this month. The lack of broad-based growth suggests large companies will face “major headwinds” next year, Morgan Stanley added.

Bank of America’s Subramanian rejected the idea that investor optimism has outpaced overall company performance. “Bull markets usually end with high conviction and euphoria – we are far from that,” she said in her note to investors.

This time last year, the market was nearing the end of a dismal 2022. Fearing a recession, many forecasters have warned of a further decline. Instead, no slowdown occurred and stocks surged.

Above all, what we can take away from recent performances is perhaps a lesson in humility.

Marko Kolanovic, chief global market strategist at JP Morgan, summed up the sentiment this month in the bank’s investment outlook for 2024: “Overall, we are cautious.”

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