AAII Members Expect Stocks to Rise and Bond Yields to Fall in 2024

Individual investors, in aggregate, expect the S&P 500 index to post modest gains in 2024. They also anticipate yields on the 10-year Treasury bond to pull back next year.

These forecasts were gathered from a questionnaire that we sent to a random group of AAII members. We purposely sought out their insights to coincide with a special milestone reached by our weekly Sentiment Survey. This week marked the 1,900th consecutive week that the AAII Sentiment Survey has been conducted. The Sentiment Survey started in July 1987.

The average among surveyed members’ forecasts calls for the S&P 500 to end 2024 at a value of 4,801. This represents a 4.7% gain from the December 8, 2023, close of 4,585 that was given as a point of reference in the questionnaire. The median forecast called for the large-cap index to end 2024 at 4,900, which would be a 6.9% increase from the December 8 close. The most bearish respondent expects the S&P 500 to fall to 3,000, a 34.6% drop. The most bullish respondent projected the S&P 500 to rise to 6,500, a 41.8% gain.

Most responses were in a 10% range of each other. Forecasts at the 20th percentile were at 4,585. Forecasts at the 80th percentile called for the S&P 500 to reach 5,100 in 2024. Most responses were gathered during the second full week of December (December 11–17).

Many respondents gave expected interest rate cuts as a reason for the S&P 500’s movement. Some AAII members anticipate economic and/or earnings growth. Others expect the economy to slow or fall into a recession next year. Respondents also mentioned next year’s elections or otherwise referenced political issues.

Here is a sampling of the rationale members gave for their forecasts:

• “The economy continues to weaken as high rates slow spending,” said Steve Edson.
• “Considering how far [stocks have] run and the leveling off of inflation, I don’t believe [the S&P 500] will go much higher,” thought Steve Moses.
• “If inflation continues to drop, [Federal Reserve chairman Jerome] Powell will reduce rates enough to make stocks reach some new highs,” noted Barry Gluck.
• “I think fears of inflation are subsiding and money on the sidelines will gradually flow into the market,” said Robert Dolin.

Best and Worst Sectors

Technology is predicted to maintain its dominance next year. More than half of all respondents (53%) picked tech for the best-performing sector in 2024. Health care followed at 44%. Financials were third at 40%. (Respondents had the option of picking more than one sector, and many did.)

Academic & educational services was the most unloved sector. Not only did it receive the fewest votes to be next year’s top performer, two out of five respondents (40%) believe it will be 2024’s worst-performing sector. Real estate was close behind, with 39% of surveyed AAII members saying it would be the worst-performing sector. Utilities were a distant third at 28%.

Notably, 15% of respondents expect technology to realize the lowest returns of all sectors in 2024. In contrast, just 6% of surveyed AAII members said industrials would be the worst-performing sector. (Again, more than one sector was able to be chosen.)

Bond Yields Are Expected to Pull Back Modestly

The average year-end 2024 forecast for the 10-year Treasury bond’s yield is 3.91%. The median expectation is 3.80%. Both reflect modest pullbacks from the December 8, 2023, yield of 4.26% that was given as a point of reference in the questionnaire. The lowest yield target given was 1.50%. The highest forecasted yield was 7.00%.

Overall, there was a greater dispersion among expectations for the benchmark bond yield than there was for the stock market. Forecasts at the 20th percentile were at 3.50%. Forecasts at the 80th percentile called for the 10-year Treasury bond to trade with a yield of 4.20%.

The Fed and expected interest rate cuts were cited by many respondents as reasons for their forecasts. Perceptions of inflation played a role. Some AAII members pointed to the election and/or the federal debt when explaining the reasoning behind their forecasts.

Here is a sampling of the rationale given by AAII members for their forecasts:

• “Yields will come down as inflation abates and our economy stabilizes,” noted Gerry Higgs.
• “Economic conditions are good, and I expect the interest rates to fall in step with [federal funds] rate decreases in 2024,” said Ted Hennessy.
• “Inflation will be more durable than people expect,” thought John Leupold.
• “The yield curve can’t remain inverted on and on,” said Donald G. Thomas Jr.