As we start on 2024, it is worth noting how much the mood has shifted in the last year. At the start of 2023, dark clouds were gathering. Inflation was out of control and a recession seemed imminent, but the S&P 500 surprised us all by delivering a 26% return. That recovery was uneven, with seven stocks accounting for a big portion of the gain, and disparate returns across sectors. The 2024 outlook is much sunnier, with the consensus shifting to a soft landing and inflation largely under control, and those higher expectations may be the biggest challenge for equities this year. The expected return (8.48%) and the equity risk premium (4.60%) for the S&P 500 do not set off red flags, by themselves, but an intrinsic value of the index (see link) leads me to conclude that stocks are over valued by about 9%, to start the year. Your outlook on earnings and interest rates may be different from mine, leading you to a different valuation and conclusion.
Slides: https://pages.stern.nyu.edu/~adamodar...
Blog Post: https://aswathdamodaran.blogspot.com/...
Valuation of the S&P 500 on January 1, 2024: https://pages.stern.nyu.edu/~adamodar...
Historical Returns on stocks - 1928 -2023: https://pages.stern.nyu.edu/~adamodar...
Historical expected returns and implied premiums for S&P 500: https://pages.stern.nyu.edu/~adamodar...