My Totally XLNT Pure Guess For The S&P 500 Finish In 2024

That’s right. I said, “Guess.” Not my calculation, not my projection, not the result of my foolproof analysis of the last 50 years of market charts.

Even though it is fun to make a guess — in my case based on many decades of studying, writing, and investing in this business — I recognize that any analysis, no matter how highly respected or well-known a source, can only be 100% accurate by luck. Still, 90% or 95% is not bad!

Let me explain. My own methodology as I determine how to invest — even in this time of massive computing power and standing on the threshold of AI — is:

I am a fundamental investor.

I do not buy “the market.” I buy and own shares of individual companies and ETFs from the publicly traded markets writ large, large cap to small cap, US to global. While there is some overlap between the Dow Industrials, the Nasdaq Composite, and the S&P 500, buying from such a limited source would deprive me of some of my best investments over the years.

I need to have a general idea of what I expect the S&P 500 to do in the coming year since it is the best index representation of the most senior, well-established large companies in the USA.

But far, far more important for me is which company’s shares I want to own, whether large cap or small, then which primary sector is likely to do better than “the market,” whether measured by the Dow, the S&P 500, the Russell 2000, or the Nasdaq, then which company, based upon fundamental analysis, rises to the top.

Choosing an exact number at which the S&P 500 index will close on any day is rendered even more difficult because of how the index itself is constructed and modified at any given time. You see, the “S&P 500 Index” is itself a moving target — by design!

Most investors believe the S&P 500 is simply an index of the 500 companies whose publicly traded shares have the highest “float-adjusted market capitalization” as of the date the Index Committee meets to decide which 500 companies have the highest float-adjusted market cap.

The committee has rules for which firms they select, but the rules are fungible. These companies have to be based in the USA. That excludes many companies that derive most of their income in the US but are headquartered elsewhere. Companies like Switzerland’s Nestle (OTCPK:NSRGY) and the UK’s BP p.l.c. (BP), with operations in more than 70 countries, are excluded from consideration.

Further, even the smallest S&P 500 Index company must have a minimum market cap of at least $8.2 billion, must have highly liquid shares, must have at least 50% of its outstanding shares available for public trading, and must have reported positive earnings in the most recent quarter. So, if one company, one quarter, has negative earnings, whoooosh, out it goes, even if it is positive the very next quarter – in case another company will likely get bumped. It’s a dog-eat-dog world.

Mergers and acquisitions also influence who gets in this quarter and who does not.

Sounds pretty straightforward, doesn’t it? However, the committee has the right — and I think the responsibility — to disobey their own rules when they believe it is appropriate. This is what makes any projection, calculation, or technical market prognostication impossible to exactly predict. External events as well as market actions by the Index Committee cannot be known in advance!

But don’t take my word for it. I highly recommend you visit this blog article, Inside the S&P 500: An Active Committee, written by David Blitzer, former Managing Director and Chairman of the Index Committee, S&P Dow Jones Indices, here.

Mt. Blitzer cites an example in that article where the committee did not follow its own rules:

Shortly after Lehman filed for bankruptcy, the news broke that the US Treasury was bailing out AIG, one of the world’s largest insurance companies. Suddenly the Treasury owned over 90% of the company. The S&P 500 guidelines require that any company in the index have a public float of at least 50%. Under the rules, the index would have removed AIG. In those scary moments, dropping AIG would have sent the markets tumbling yet again. Given market conditions and investor fears, the Index Committee quietly set the 50% float rule aside.”

Predicting an exact number for the level the S&P 500 will end at on the last trading day of 2024 is great good fun. I enter into this game with that approach, knowing that there are a myriad of variables no “system” ever invented (including a future one with AI!) can ever account for.

Here is why I believe my hunch for that ending value will be very close to the golden mean:

2022 was a disastrous year for US equities. The Dow was the best of the lot, down 8.8% The S&P 500 plunged 19.4% — its worst year since 2008. The Nasdaq Composite was the most heartbreaking of all, falling 33.1%.

We had an up-and-down year in 2023. The S&P 500 is ending quite strong and the Dow has just broken through the 37,000 barrier for the first time in history. (Of course, every single Dow stock is also in the S&P 500.)

The only fly in this ointment is that ex the Magnificent 7, the S&P 500 is still up, but just 12.4%, rather than the 25% that it is up including those 7. Even if you owned all 7 (perhaps via the IVV, SPY, or VOO ETFs) that 25% just gets you back to the end of 2021, with 2020 and 2023 a “lost two years” for S&P 500 investors.

(The math is simple. If you had $100 invested on Day 1 of 2022, it would have been worth just $80.60 by the end of 2022. If you finish up 25% in 2023, that means you would have made $20.15 on your $80.60, for a return over these past two years of 75 cents. ($20.15+$80.60 = $100.75.) With inflation, that looks pretty awful.

Two lost years are just one reason why I believe there is enough pent-up demand to see a good return in 2024. I have been in this business for many decades. Sometimes I just listen to my gut, which is in some mysterious but well-proven way is connected to the memories of all those years.

To this, I add current and what I believe is likely to be, over the next 12 months, better earnings for larger cap (read: S&P 500) companies, which will mean a lower Price/Earnings ratio. I see higher sales for these companies as the USA enjoys a higher employment rate which translates to higher retail, energy, and travel sales so a better Price/Sales ratio. I see more cash flowing into these large firms for an improved Price/Cash Flow, resulting in a stronger Price/Book ratio. And I believe that it is a fool who bets against American democracy joined with American capitalism.

A caveat: The last time I nailed it on the head (well, two days early) was when I called the end of the Great Recession back in March of 2009, right here in these pages on Seeking Alpha.

Of course, that may have been my allotted once-in-a-lifetime almost perfect call!

So many investing articles cite “This Analyst Correctly Predicted the XYZ” or “Famous Brokerage Firm Said ABC Would Occur!” that pure luck might account for it since the ratio of predictions to these culled from among them is probably somewhere in the range of 100 to one or 1000 to one!

With all this in mind, I believe the S&P 500 Index will finish the year 2024 at 4962.22. But, wait, there’s more.

Most prognosticators have been saying (until this recent rally, anyway,) that we would be in for difficult times in the first half of 2024 and then enjoy a boom in the second half.

I don’t think so. I think we may very well reach close to 5000 in the coming three or four months. Euphoria carried over from this month that the Fed has likely overshot and is now going to cut rates at a faster rate than it currently suggests “could” carry the market higher for a while longer.

I believe we are then most likely to see a reversal of some sort, as earnings do not immediately keep up with outsized expectations, which will bring the S&P 500 down during the dog days of summer.

But then I see yet another grind higher to close even nearer 5000. To 4962.22, in fact.

This scenario will require some exceptional earnings from these large-cap companies throughout the year — and not just the Magnificent 7. (For those who have been around a while, isn’t this beginning to sound a lot like the Nifty Fifty?)

I have great respect for my fellow analysts at Seeking Alpha and on Wall Street who choose a different style of investing and succeed at it. I look forward to their charts and their reasoning.

My best SWAG is 4962.22.

The only event that would make me raise that number is if the United States elects a US president younger than 78 years old in November.

4962.22.

Editor’s Note: This article was submitted as part of Seeking Alpha’s 2024 Market Prediction competition, which runs through December 20. With cash prizes, this competition — open to all contributors — is one you don’t want to miss. If you are interested in becoming a contributor and taking part in the competition, click here to find out more and submit your article today!