The stock market is poised for a strong rally in 2024 as corporate earnings impress and trillions of dollars of sidelined cash gets invested, according to a Monday note fromThe bank highlighted that earnings growth should outpace the economy next year as long as credit conditions don't deteriorate further.
"The recent drop in [interest] rates and cost cutting point to potentially a stronger 2024 – historically, earnings recovered faster than they fall," BofA's Savita Subramanian said. companies that have reported first-quarter earnings so far, 68% beat profit estimates and 75% beat sales estimates, which are both above their historical average.
"Earnings are likely to outpace the economy in 2024, as the earnings downturn began earlier than the economic downturn this cycle. Earnings also tend to recover stronger than they fall, as downturns usually remove excess capacity, resulting in leaner cost structure and improved margin profiles," Subramanian explained.there's potential for credit conditions to hold steady if private equity and venture capital firms deploy their $2.2 trillion cash pile.
"Liquidity from central banks and governments and banks may be waning, but dry powder at venture capital/private equity firms still sits at record levels," Subramanian said.as they seek to take advantage of 4% interest rates. While that risk-free return is attractive to investors, a solid rally in risk-assets could spark some of that money to flow back into the stock market, helping boost stock prices.