Are We in a Bull Market Yet?

Jan 24, 2024

Even as stocks hit new highs, investors may have to wait longer for a durable bull run. Here’s how you should invest in the meantime.

Lisa Shalett

Key Takeaways

  • Potential economic obstacles in 2024 could delay the start of a sustained bull market, but investors can still find opportunities.
  • Consider staying cautious on U.S. stocks while shifting to bonds for potential income and capital gains.
  • Outside the U.S., look to Japan, stock-specific opportunities in Europe, and broader index-level opportunities in India, Brazil and Mexico.

Has a new bull market already begun? Some investors would say yes, with the S&P 500 Index well over the popular threshold for a bull run of a 20% gain from a trough.


However, the index only recently finished recouping its bear-market losses and today sits just slightly above its January 2022 peak. With potential economic threats remaining and market uncertainties looming in 2024, investors may still need to have patience before a truly durable bull market can get underway.


But that doesn’t mean there aren’t any opportunities today. In fact, Morgan Stanley’s Global Investment Committee believes investors should aim to be fully invested in 2024, with an eye toward diversifying their portfolios and finding balance when it comes to characteristics like style, market capitalization, fundamental quality and geography. Here are three considerations for investors in the coming year.

  1. 1
    Stay Cautious on U.S. Equities

    We continue to see risks in U.S. stocks, particularly in the market-cap-weighted benchmark indices, such as:

    • extreme concentration, with the biggest tech names weighing heavily in major indices;
    • high prices relative to potential earnings; and
    • ambitious earnings estimates pegging 2024 profits growth at 10%.


    What’s more, the U.S. stock market begins the year in a precarious place—overbought, with very low volatility suggesting a sense of complacency among investors.


    Given such risks, we expect the S&P 500 to trade between 4,100 and 5,100 throughout the year, likely ending 2024 around 4,500.


    For investors who want passive exposure to U.S. stocks, rather than actively choosing individual equities, consider investing in an equal-weighted S&P 500 strategy, which seeks to allocate equal amounts of capital to each of the 500 stocks in the index. This looks like a less risky approach than the traditional cap-weighted version, in which stocks with larger market caps represent a larger share of the index, since a substantial drop in any of the large tech stocks currently dominating the index would have a greater impact on the index as a whole. 

  2. 2
    Shift to Fixed Income

    Consider putting a larger share of your portfolio in bonds. As interest rates remain higher for longer, investors may get better risk-adjusted returns from the annual rate paid on bonds, while potentially earning capital gains in bonds if interest rates decline in 2024, as forecast, and bond prices increase in tandem. (Bond prices typically rise when rates fall.)


    In contrast to stocks, we believe U.S. Treasury bonds are closer to being fairly priced and see the 10-year yield likely ending 2024 somewhere around 3.95%, not far below its current level.


    Municipal bonds and investment-grade corporate credit, paired with short-duration Treasuries, remain decent options.

  3. 3
    Seek Opportunity Beyond U.S. Stocks and Bonds

    Outside the U.S., we prefer investment opportunities in Japan, based on improving economic growth and inflation dynamics, as well as the yen’s cheapness relative to other major currencies. We also continue to look for stock-specific opportunities in Europe, and broader index-level opportunities in select emerging markets like India, Brazil and Mexico.


    Among alternative assets, we’re focused on hedge funds whose managers are good stock-pickers and can use leverage and risk management to help amplify returns. Investors may also want to consider selectively investing in infrastructure, commodities such as gold and residential real estate. 

Uncertainty Lingers

As always, the broader economic backdrop informs the Global Investment Committee’s outlook. The year has started with accommodative financial conditions, meaning that there has generally been enough cash in the financial system for businesses and households to borrow if needed. This level of liquidity was arguably the single biggest surprise of 2023, given how aggressively the U.S. Federal Reserve hiked rates. Such loose conditions are poised to reverse, however, with the Fed’s program of propping up regional banks expiring, plus a likely ramping up of U.S. Treasury borrowing, among other factors that could substantially drain liquidity in the financial system. This could remove a key support for today’s stock valuations while helping keep rates higher for longer.


Ultimately, we’re entering a year of lingering uncertainty. Inflation remains, despite the market’s hope that the fight to tame it is already won. Government deficits—now running at about 7% of GDP and rapidly adding to a record debt pile of $34 trillion—may not be sustainable. And importantly, the question of where interest rates will end up for the long term hasn’t yet been answered. As the year unfolds, we recommend investors stay patient and focus on the long term. As always, keep in touch with your Financial Advisor to help you position your portfolio for the risks and opportunities.


This article is based on Lisa Shalett’s Global Investment Committee Weekly report from January 22, 2024, “2024 Outlook Summary: Turn, Turn, Turn.” Ask your Morgan Stanley Financial Advisor for a copy. Listen to the audiocast based on this report.

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