Get Ready for 2024: Good News Ahead for U.S. Companies, but Are We Expecting Too Much?

In 2024, experts think that U.S. companies will make more money, which is great. They believe this because things like prices going up and interest rates going down can help businesses do better. However, there are also concerns about the economy not growing as fast.

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People estimate that the profits of big companies in the S&P 500 will go up by 11.1% in 2024. This is a lot better than the small 3.1% increase we saw last year, according to the smart folks at LSEG.

But for this to work out well, companies need to make even more money to match the high prices of stocks. Right now, the S&P 500 is trading at 19.8 times what they think companies will earn in the next 12 months. This is a lot more than the usual average of 15.6 times, as per the numbers from LSEG Datastream.

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At the end of the year, there was a big jump in the stock market because interest rates went down. This happened especially after the people in charge of money, the Federal Reserve, said they might lower rates in 2024 after raising them in 2022.

In December, the Dow Jones industrial average reached a record high for the first time since January 2022. The S&P 500 is also very close to reaching its all-time high. It went up by 24.2% over the year.

Some smart people, like Sameer Samana from Wells Fargo Investment Institute, say that for the market to stay high, companies need to make a lot more money next year.

But there are worries for 2024, like the impact of higher interest rates on the economy and how much money companies make, according to Sameer Samana.

Even though the government said the economy grew faster in the third quarter, there are still concerns. As companies tell us how much money they made in the last part of the year and what they expect for the next year, we might hear not-so-great news. This will start happening in the middle of January when they release their results.

Nick Raich, who is in charge of a company called The Earnings Scout, said that estimates for how much money companies will make in the first part of 2024 are getting worse faster. He points to companies like FedEx, which had its shares drop a lot after saying it didn't make as much money as people thought and expected less money for the whole year.

The smart people who look at these things also think that U.S. prices going down for the first time in more than three years is good for companies in 2024. They say people still seem to be buying things, inflation is getting better, jobs are still there, and gas prices are going down. This is good for companies.

There's also hope for companies that work on artificial intelligence (AI). They believe that as AI technology gets more popular, companies dealing with it will do well. This is especially true for big companies like Apple, Microsoft, Alphabet, Amazon.com, Nvidia, Meta Platforms, and Tesla. These seven companies made up a big chunk of the S&P 500's growth in 2023, according to Howard Silverblatt from S&P Dow Jones Indices.

The Federal Reserve recently changed its stance, saying it might not raise interest rates as much. This could also make the U.S. dollar weaker, which means U.S. companies can sell more things abroad.

But not everyone agrees that things will be perfect in 2024. Some experts from J.P. Morgan say that the market is expecting everything to be just right with prices and growth, which might not happen. They don't think the current idea of how much companies will make (30% growth) is very realistic. They believe it's more like expecting a perfect situation, and that's not very likely.

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