The S&P 500 will jump to a new record high of 5,000 next year, RBC says, joining bullish outlooks on 2024

• S&P 500 will end next year at 5,000, RBC Capital Markets said, joining bullish 2024 views.
• Strong investor sentiment and buoyant equity valuations will carry the index to a fresh record high.
• While Treasury yields are still high, they don't threaten the appeal of equities, analysts said.

Joining the bullish bets on the stock market next year is RBC Capital Markets, which expects the S&P 500 to hit a record high next year.

In a note published Wednesday, RBC analysts forecasted the benchmark index to end 2024 at the 5,000 mark, a 10% gain from Tuesday's close.

"While the November rally (which has seen the S&P 500 rise more than 10% since its October 27th low) has likely pulled forward some of 2024's gains, we remain constructive on the S&P 500 in the year ahead," analysts wrote.

RBC's forecast puts it alongside other Wall Street bulls who see big gains in the S&P 500 next year. On Tuesday, Bank of America also predict the index will hit 5,000, echoing the same year-end target that Phil Orlando, chief equity strategist at Federated Hermes, had set as well.

For its part, RBC's outlook is derived from five models, which are based on sentiment, valuation and earnings, the economy, politics, and the dynamic between stocks and bonds.

In their Wednesday note, analysts called sentiment "the best star in the sky to navigate the US equity market in 2023."

RBC also noted that equity valuations can stay higher than many investors currently realize.

"Implicit in [our valuation] model is the idea that continued moderation in inflation can do most of the heavy lifting to prop up the P/E multiple, something our analysis suggests happened back in the 1970's," they wrote. "This model has been the most constructive one in our arsenal on the 2023 forecast, and may very well end up being the most accurate if Santa shows up in December instead of the Grinch."

Meanwhile, bond yields have fallen since late October, but they are still higher than earlier this year. Still, those higher returns in the bond market — which may make equities less attractive — aren't a concern for stocks, RBC analysts said.

"If we look at 12 month forward returns on the S&P 500 when the earnings yield gap has been at similar levels in the past, the stock market has still tended to rise solidly," they wrote.

If there's any uncertainty threatening the momentum carrying stocks next year, it's the US presidential election.

On average, in a presidential election year, the S&P 500 rises by around 7.5%, analysts said. That's below the usual growth in the index.

"What this stat tells us is that any given Presidential election year is a source of uncertainty for the US equity market," they noted. "Given all of the unusual aspects of the 2024 contest, that seems like an appropriate way to think about the political backdrop for stocks in 2024."