Downturn or Not? At Year’s End, Wall St. Is Split on What’s Ahead.

Twelve months ago, Tom Lee bet that 2023 was going to turn out just fine.

While many of his peers on Wall Street were sounding the alarm over an impending economic downturn, Mr. Lee, a stock market strategist who spent more than a decade running J.P. Morgan’s equity research before setting up his own firm, forecast in December 2022 that falling inflation and economic resilience would buck the broadly bearish mood.

Mr. Lee was right. Despite political brinkmanship over the nation’s debt ceiling, a banking crisis in March, fears over the cost of funding the government’s fiscal deficit, a continuing war in Ukraine and fresh conflict in Israel, the core of Mr. Lee’s prediction came to fruition in 2023. Inflation has fallen, unemployment remains low, and the S&P 500 has risen 24 percent.

Most investors disagreed with Mr. Lee’s prognosis; in 2023, they pulled more than $70 billion out of funds that buy U.S. stocks, according to data from EPFR Global. Only a quarter of fund managers whose performance is benchmarked to the S&P 500 have beaten the index’s returns this year, according to Morningstar Direct.

“2023 was a year that people were so convinced we would have a recession and they looked at everything through that lens,” said Mr. Lee, head of research for Fundstrat. “Then there were folks like us that said we don’t know the future but there is little evidence a recession is coming.”

Heading into 2024, prognosticators tracked by Bloomberg share Mr. Lee’s optimism more broadly, including analysts at Citigroup and Goldman Sachs. Binky Chadha, an equity strategist at Deutsche Bank who bet against the consensus with Mr. Lee last year, is also predicting that the bull rally will continue.

At the same time, analysts at Morgan Stanley, J.P. Morgan and others maintain that the absence of a severe downturn in 2023 doesn’t mean it has been avoided altogether, since the full effect of higher interest rates is still working through the economy.