5 Bold Predictions for the Stock Market and More in 2024 -- And Why a Few Will Probably Be Wrong

Key Points

Nobody knows for sure what the stock market or the economy will do, but here are some of my predictions for the new year.

I think stocks will outperform many investors’ expectations, but there’s a lot more to the story.

Here are my predictions for the market, small-cap stocks, real estate, inflation, and more.

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To be clear, nobody has a crystal ball that can predict what the stock market, economy, or housing market will do over any given period. Virtually no experts would have predicted 8% mortgage rates, prominent bank failures, or a 54% gain in the Nasdaq in 2023 -- but they happened.

With that in mind, each year I like to make some bold predictions of my own. This year, I think the stock market, inflation, real estate market, and more could look significantly different than most experts predict by the end of the year. In no particular order, here are five things that I think could happen in 2024, and why.

The stock market will have a strong year

After a dismal 2022, 2023 was a very strong year for the stock market. The S&P 500 generated a total return of 26%, and the Nasdaq delivered a stellar 54% return for investors.

For 2024, the consensus among most analysts is a modest single-digit gain for stocks. The median projection calls for the S&P 500 to rise by about 8%, while some of the biggest Wall Street companies, including JPMorgan Chase (JPM 0.06%) and Morgan Stanley (MS 0.29%), expect the S&P to fall in 2024.

However, I think the market will pleasantly surprise investors. My first bold prediction is that the S&P 500 will produce a total return (including dividends) of at least 15% in 2024, and some of the other predictions in this article will show why.

Small-caps and value stocks will outperform, and by a wide margin

Large-cap stocks and growth stocks have fueled the bulk of the stock market's rebound. I already mentioned the Nasdaq returned more than 50% in 2023, and it's also worth noting that the small-cap Russell 2000 index underperformed the S&P 500 by about nine percentage points.

There are a few valid reasons for this. For example, value stocks are generally impacted more by rising interest rates, and some of the mega-cap tech stocks were among the most beaten-down in 2022, so it makes sense they rebounded strongly. But I'm predicting that small-cap stocks and value stocks (especially dividend payers) will significantly outperform the overall market. And if this happens, ETFs like the iShares Russell 2000 ETF (IWM 0.96%) and the Vanguard Value ETF (VTV -0.06%) should have a very good year.

Mortgage rates will plunge into the 5% range -- and quicker than most experts think

As I recently wrote, most experts are projecting that mortgage rates will modestly fall in 2024, with most predictions in the mid-to-low 6% range. However, I think inflation will continue to moderate and the Federal Reserve will cut rates faster than expected (more on that in a bit), putting downward pressure on mortgage rates.

This is arguably the boldest prediction on this list, but I foresee mortgage rates falling to about 5.5% by midyear in 2024, which would likely stimulate the slow real estate market.

Home prices will surge

For the most part, experts think real estate prices will be relatively flat in 2024. For example, Zillow recently said that home prices will fall by 0.2% in 2024.

However, and this also depends on my mortgage prediction being right, I think lower borrowing costs combined with pent-up demand for homes will create a very active real estate market in 2024, and the improved home affordability will be a positive catalyst for home prices. I don't think we'll see a spike. But I do think we'll see a mid-single-digit gain in home values.

The Fed will cut rates at least eight times

According to the economic projections just released by the Federal Reserve's policymakers, they are expecting to cut rates just three times in 2024.

To put it mildly, I think they'll be far more aggressive. Inflation data continues to trend closer to the Fed's target and all signs are pointing to the Fed pulling off the "soft landing." The market is pricing in six or seven rate cuts, according to CME Group's (CME -0.75%) FedWatch tool, but I'm taking it a step further. I think we'll see at least eight quarter-point rate cuts in 2024, which should help fuel economic growth (and stock market performance).

I probably won't go 5-for-5

To be perfectly clear, these are intended to be bold predictions. Not many people think that eight rate cuts and avoiding a recession is a high-probability event, for example, and few predictions are calling for mortgage rates to dip below 6% before the end of 2024. There are also plenty of things that could happen that are impossible to foresee -- such as the outcome of the November 2024 election.

So, I don't expect to be 100% successful with these predictions. The best I've done is getting four of my five 2022 predictions right.

However, the point is that these are five things that I think have a higher probability of happening than most experts seem to believe. Only time will tell which ones will happen, but I'm betting that it will be a good year for investors, homeowners, and the economy in general.