As the year comes to a close, investors are looking ahead to 2024 and considering their investment strategies. The “Magnificent Seven” stocks have been driving the market rally in 2023, but experts are divided on their future performance. Additionally, emerging markets, small caps, consumer discretionary stocks, and interest rate-sensitive plays are emerging as potential investment themes for the upcoming year.
The year 2023 has been marked by the dominance of the “Magnificent Seven” stocks, including Apple, Alphabet, Microsoft, Amazon, Meta, Nvidia, and Tesla. These mega-cap tech names have played a significant role in driving the market rally, with a combined weighting of 28% in the S&P 500. However, as we approach 2024, investors are questioning whether these stocks still have room to run. Additionally, emerging markets, small caps, consumer discretionary stocks, and interest rate-sensitive plays are emerging as potential investment themes for the upcoming year. Let’s explore these trends and what they mean for investors’ playbooks in 2024.
1: The Fate of the Magnificent Seven
The performance of the Magnificent Seven stocks has been fueled by excitement surrounding artificial intelligence and their strong fundamentals. However, opinions on their future performance diverge. Some experts, like DoubleLine CEO Jeffrey Gundlach, believe these stocks will be among the worst performers in an upcoming recession. On the other hand, Goldman Sachs’ chief US equity strategist David Kostin sees the megacap group outperforming once again. The debate continues as investors weigh the potential risks and rewards of sticking with these stocks in 2024.
2: Emerging Markets on the Rise
China’s stock market has faced challenges in 2023, but some strategists believe 2024 could be a turning point. Charles Schwab strategist Jeffrey Kleintop points to corporate investment in China, productive talks between President Biden and Chinese leader Xi Jinping, and economic stimulus as reasons for optimism. While cautioning about historical volatility and unique challenges, Kleintop suggests that broader support across Asian markets could present opportunities for investors in 2024.
3: Small Caps and Interest Rate-Sensitive Plays
As the Federal Reserve halts its rate-hiking campaign, areas of the market that have been hard-hit could present buying opportunities. eToro strategist Ben Laidler suggests that cheaper interest rate-sensitive plays like real estate, banks, and small caps could benefit as the Fed cuts rates. October’s cooler inflation data has already prompted traders to move up expectations for Fed rate cuts, leading to a surge in small caps. RBC capital markets head of US equity strategy Lori Calvasina also sees small caps as well-positioned for the longer term.
4: Consumer Discretionary Stocks as a Top Idea
Despite concerns about a weakening consumer, JPMorgan Private Bank US equity strategist Abby Yoder believes that consumer discretionary stocks are a top way to play the index’s gains. Yoder argues that while the consumer may be slowing, it is slowing from high levels, and the sector has already experienced an earnings recession period. With expectations of a reacceleration on the top line and margin support, consumer discretionary stocks could prove to be a contrarian call in 2024.
5: Shifting Investment Strategies
With uncertainty surrounding interest rates, geopolitical risks, and the upcoming 2024 election, experts advise investors to be ready to shift their investment strategies. Truist chief market strategist Keith Lerner emphasizes the need for tactical decision-making in the face of remaining crosscurrents. Unforeseen events throughout 2023 have repeatedly forced forecasters to adjust their outlooks and strategies, highlighting the importance of adaptability in the ever-changing investment landscape.
As investors prepare for 2024, the fate of the Magnificent Seven stocks remains uncertain. While some experts warn of potential underperformance, others see continued outperformance driven by strong fundamentals. Additionally, emerging markets, small caps, consumer discretionary stocks, and interest rate-sensitive plays are emerging as potential investment themes for the upcoming year. As always, the key for investors will be to stay informed, assess the risks and rewards, and be ready to adapt their strategies as market conditions evolve.