As the year comes to a close, the “Magnificent Seven” stocks continue to dominate the market, but experts are divided on their future performance.
The year 2023 has been marked by the remarkable performance of the “Magnificent Seven” stocks, consisting of Apple, Alphabet, Microsoft, Amazon, Meta, Nvidia, and Tesla. These mega-cap tech companies have been the driving force behind the market rally, with the S&P 500 up 19% so far. However, as we look ahead to 2024, experts are split on whether these stocks will continue to outperform. This article explores the different perspectives and offers insights into other potential investment themes for the coming year.
1: The Debate Over the Magnificent Seven
The Magnificent Seven stocks have played a significant role in this year’s market rally, accounting for a combined weighting of 28% in the S&P 500. Their outperformance, fueled by excitement surrounding artificial intelligence, has overshadowed the broader index. However, opinions on their future performance differ. While some, like Goldman Sachs’ David Kostin, believe these stocks will continue to outperform due to their strong fundamentals, others, such as DoubleLine CEO Jeffrey Gundlach, warn that they will be among the worst performers in an upcoming recession. The debate raises the question of whether investors should stick with the Magnificent Seven in 2024 or consider alternative strategies.
2: Emerging Markets as a Strong Investment Theme
China’s stock market has faced challenges this year, with the MSCI China Index falling more than 9%. However, some strategists, like Charles Schwab’s Jeffrey Kleintop, see 2024 as a potentially better year for emerging markets. Kleintop points to corporate investment in China, productive talks between President Biden and Chinese leader Xi Jinping, and economic stimulus as reasons for optimism. He suggests that broader support across Asian markets, particularly in companies braced for a different economic environment, could present opportunities for investors. However, caution is advised due to China’s historical volatility and unique challenges.
3: Small Caps and Cheap Interest Rate Sensitive Plays
As the Federal Reserve halts its rate-hiking campaign, some strategists believe that hard-hit areas of the market could present buying opportunities. eToro strategist Ben Laidler suggests that investors should look at cheaper interest rate-sensitive plays like real estate, banks, and small caps. The expectation of future rate cuts has already led to a surge in small caps, with the Russell 2000 rising over 5% in recent weeks. RBC Capital Markets’ Lori Calvasina also sees small caps as well-positioned for the longer term, as they tend to perform well during easing cycles.
4: Consumer Discretionary Stocks as a Top Idea
Despite concerns about a slowing consumer, JPMorgan Private Bank’s Abby Yoder sees consumer discretionary stocks as a top way to play the S&P 500’s potential gains in 2024. Yoder argues that while the consumer may be slowing, it is coming from high levels, and the sector has already experienced an earnings recession period. She expects a reacceleration in the top line, along with margin support, which could drive the performance of consumer discretionary stocks.
As we approach 2024, investors face a range of opinions and investment themes to consider. While the Magnificent Seven stocks have been the stars of this year’s market rally, their future performance is uncertain, with experts divided on their prospects. Emerging markets, small caps, and consumer discretionary stocks are among the alternative investment ideas for the coming year. As always, investors should be prepared to shift their strategies based on changing market conditions and remain vigilant in the face of uncertainty.