CFRA's Chief Investment Strategist Sam Stovall joined Yahoo Finance Live to share his optimistic 2024 market outlook, stating "next year will be a surprisingly good year."

He notes multiple supportive factors, including 2024 being an election year, which tends to show consistently positive historical returns. While overbought conditions near-term could spur pullbacks, Stovall sees no real fear of a bear market now. He expects any dips to follow "a continued advance," rather than precede declines.

Stovall also observes that an anticipated Federal Reserve rate cut could lift valuations across assets - "lifting all boats" in size, style, sector and industry. During past Fed pauses, he notes areas like financials and real estate tended to outperform. Following solid 2023 gains, he suggests "letting your winners ride" per trend, rather than banking on "last year's losers" recovering as typical after down years.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JULIE HYMAN: We turn to Sam Stovall, CFRA Research chief investment strategist, a great guy with stats on the market as well. Sam, it is great to see you. I want to start where we were just talking about what Josh was just talking about, that is, this broadening of the rally that we have started to see. Do you think that continues and does it indeed mean that more gains are coming here into 2024?

SAM STOVALL: Hey, Julie. And, Josh, good to talk to you too again. Yes, I think that 2024 is going to be a surprisingly good year. Historically, good years follow great years. We've actually seen an improvement in the average price change by 200 basis points-- an improvement by 10 percentage points in terms of frequency of advance after a 20 plus percent gain. So that's the first thought.

Second thought is this is the election year. First term administrations, usually they're up about 15 and a 1/2 half percent on a total return basis with every one of those years being positive. So again, another positive indication. I think we might, however, be getting a little bit overbought in terms of percent of subindustries above their 50-day stocks, above their 50-day the CNN greed, fear factor being at extreme greed levels, et cetera.

So I think maybe a post all time high pause. But as Josh said, nothing really to fear because the next decline of 5% or more will probably come about 10% after a continued advance and would not likely lead into a new bear market.

JOSH LIPTON: So, Sam, so maybe some near-term overbought here, but looking ahead some potential strong tailwinds. I am interested in, Sam, after you've seen the rally like this, how does valuation look to you? Does that still look attractive even at these levels?

SAM STOVALL: Well, at 20 times forward 12-month earnings for the S&P 500. It is higher than the long-term average, which is about 17. But I think because investors are anticipating an end to the rate tightening program, expecting to see the first cut, the Street is looking for the first quarter. I think that the Fed's going to wait until the second quarter.

But still the market tends to advance about 14% in that 11-month period between the last rate hike and the first rate cut, lifting all boats if you will, in terms of sizes, styles, sectors, and subindustries.

JULIE HYMAN: Are there those that particularly stand out, though, as doing better in that kind of a scenario, Sam?

SAM STOVALL: Yes, well, financials are one of the groups that tend to be outperformers in this Fed pause period. Real estate also does fairly well. And so I think also that taking a look at the groups that has done so well this year, they will likely carry over into 2024.

History tells us that following a down year, you want to buy last year's losers because they're the ones that have the most to recover, and that's what we saw in 2023. But following an up year, like 2023, you want to let your winners ride, so consumer discretionary, communication services, and tech, but also the honorable mention as found in industrials and financials.