How much lower will stocks go in a recession?
Once a recession strikes, the S&P 500 could fall as low as 3,500, she predicted, which would take the benchmark index around 26% lower from its current levels. That outlook is based on the Federal Reserve's "aggressive" monetary tightening since March 2022, Ibrahim said.
"While inflation can exacerbate the pain of a recession, the stock market can still drop by half in a recession — even if there is no inflation," he warned, noting that the S&P 500 dropped an average 36% at the onset of a recession.
It's normal for stock prices to go down during an economic downturn. The important thing is to hold on to your stocks and wait for the market to recover. Remember that recessions don't last forever. The economy will eventually recover and start growing again.
Since 1937, the S&P 500 has lost 32% on average in drawdowns associated with recessions.
Third, many Wall Street analysts predict that the S&P 500 will jump in 2024, but with a lower return than last year. Sure, they're guessing, just as I am. However, they think that moderating inflation and the potential for interest rate cuts should be good for stocks. I agree.
Key Takeaways. The U.S. equity market's rally at the end of 2023 has left stocks overvalued, with little room for error. Analysts' estimates for 2024 corporate earnings may be too optimistic, given a likely tapering in U.S. economic growth. Markets may also be overestimating the number of Fed rate cuts in 2024.
For now at least, analysts are anticipating S&P 500 earnings growth will continue to accelerate in the first half of 2024. Analysts project S&P 500 earnings will grow 3.9% year-over-year in the first quarter and another 9% in the second quarter.
On the negative side, energy and infrastructure stocks have been the hardest-hit in recent recessions. Companies in these sectors are acutely sensitive to swings in demand. Financials stocks also can suffer during recessions because of a rising default rate and shrinking net interest margins.
Investing During a Recession
Generally, that's the point in time when, as an intelligent investor you want to be buying stocks not selling them. If clothes were 24% off, you wouldn't wait for them to go back up in price when things felt “safe” to buy them at full price. You'd buy them at the discount.
Historically, the industries considered to be the most defensive and better placed to fare reasonably during recessions are utilities, health care, and consumer staples.
Will stock market improve in 2024?
As a whole, analysts are optimistic about the outlook for stock prices in 2024. The consensus analyst price target for the S&P 500 is 5,090, suggesting roughly 8.5% upside from current levels.
Treasury Bonds
Investors often gravitate toward Treasurys as a safe haven during recessions, as these are considered risk-free instruments. That's because they are backed by the U.S. government, which is deemed able to ensure that the principal and interest are repaid.
The charts reveal that on average stocks are up 10% three months following the start of a recession and 15% six months after the start of a recession. More impressively, stocks have historically gained 23% and 33% in the one and two years after the start of a recession, respectively.
Experts with the Motley Fool suggest allocating an even higher percentage to stocks until at least age 50 since 50-year-olds still have more than a decade until retirement to ride out any market volatility.
Economic growth actually accelerated above its 10-year average in 2023. That resilience, coupled with a fascination about artificial intelligence (AI), changed investors' collective mood. The S&P 500 soared throughout the year and finally reached a new high in January 2024, making the new bull market official.
S&P 500 could hit 6,500 by end-2025, says Capital Economics.
- Aris Water Solutions, Inc. (NYSE:ARIS)
- XPeng Inc. (NYSE:XPEV)
- NIO Inc. (NYSE:NIO)
- ANI Pharmaceuticals, Inc. (NASDAQ:ANIP)
- Concentrix Corporation (NASDAQ:CNXC)
- Fiverr International Ltd. (NYSE:FVRR)
- Perion Network Ltd. (NASDAQ:PERI)
- StoneCo Ltd. (NASDAQ:STNE)
Highlights: Nominal median U.S. equity market return of 4.2% to 6.2% during the next decade; 4.8%–5.8% median expected return for U.S. fixed income (as of Sept. 30, 2023). Vanguard's latest U.S. equity market return forecast is a touch below where it was a year ago. (The firm presents its forecasts in a range.)
Is now a good time to invest in stocks? If you're looking to invest for your future -- five, 10, or 40 years from now -- now is as good a time as ever to buy stocks. Despite ongoing recession fears, it's important to remember the market is forward-looking. Stock values are based on future expected earnings.
Feb 18 (Reuters) - Goldman Sachs raised its year-end target for the benchmark S&P 500 (. SPX) , opens new tab to 5,200, reflecting roughly a 4% upside from current levels, citing an improved earnings outlook for the index companies.
What is the best investment for 2024?
- Bonds and bond ETFs.
- Dividend-paying stocks and ETFs.
- Master limited partnerships.
- Real estate investment trusts.
- Annuities.
- DigitalOcean has a sea of opportunities in AI.
- Snowflake is expensive, but a valuation near record lows should not freeze out investors.
Yes, cash can be a good investment in the short term, since many recessions often don't last too long. Cash gives you a lot of options.
What businesses are profitable in a recession? Many investors turn to stocks in companies that sell consumer staples like health care, food and beverages, and personal hygiene products. These businesses typically remain profitable during recessions and their share prices tend to better resist stock market sell-offs.
Healthy large cap stocks also tend to hold up relatively well during downturns. Investing in broad funds can help reduce recession risk through diversification. Bonds and dividend stocks can provide income to cushion investors against downturns.
