As the year comes to a close, investors are debating the potential of the “Magnificent Seven” stocks and emerging markets in the upcoming year.
The “Magnificent Seven” stocks, including Apple, Alphabet, Microsoft, Amazon, Meta, Nvidia, and Tesla, have been the driving force behind this year’s market rally. With the S&P 500 up 19% and only five weeks left in 2023, investors are now looking ahead to 2024 and contemplating the future returns of these megacap tech names. While some strategists predict limited upside, others are more bullish, forecasting record highs for the S&P 500. Additionally, emerging markets, particularly China, are gaining attention as potential investment opportunities in 2024. Let’s explore the different perspectives and themes that investors should consider for the upcoming year.
Stick with the Magnificent Seven?
The “Magnificent Seven” stocks have played a significant role in this year’s market rally, with a combined weighting of 28% in the S&P 500. However, opinions on their future performance vary. DoubleLine CEO Jeffrey Gundlach warns that these stocks may be among the worst performers in the upcoming recession and advises investors to diversify. On the other hand, Goldman Sachs chief US equity strategist David Kostin believes that the megacap group will continue to outperform due to their expected sales growth, higher margins, and stronger balance sheets.
Emerging markets in 2024
China’s stock market has faced challenges this year, but some strategists believe that 2024 could be a turning point. Charles Schwab strategist Jeffrey Kleintop points to factors such as corporate investment, productive talks between President Biden and Chinese leader Xi Jinping, and economic stimulus as reasons to be optimistic about the region. However, he also cautions investors about the historical volatility and unique challenges associated with investing in China. UBS strategist Andrew Garthwaite suggests that beaten-down Chinese internet stocks could see a turnaround in 2024.
Small caps and interest rate-sensitive plays
As the Federal Reserve halts its rate-hiking campaign, hard-hit areas of the market present buying opportunities for investors. eToro strategist Ben Laidler recommends looking at cheaper interest rate-sensitive plays like real estate, banks, and small caps as the Fed cuts rates. RBC capital markets head of US equity strategy Lori Calvasina echoes this sentiment, stating that small caps tend to perform well during easing cycles and may be well-positioned for the longer term.
Consumer discretionary stocks as a top idea
JPMorgan Private Bank US equity strategist Abby Yoder believes that the S&P 500 will reach a new record by June 2024, and consumer discretionary stocks are a top way to play the index’s gains. Yoder acknowledges concerns about a slowing consumer but argues that the sector has already gone through an earnings recession period and expects a reacceleration on the top line along with margin support.
Shifting investment strategies
Given the uncertainty surrounding interest rates, geopolitical risks, and the upcoming 2024 election, Truist chief market strategist Keith Lerner advises investors to be prepared to shift their investment strategies. Lerner highlights the remaining crosscurrents, including the impact of Fed policy, the election year, geopolitics, and the direction of the economy, which may require investors to be more tactical in their approach.
Conclusion: As we approach 2024, investors are grappling with the potential of the “Magnificent Seven” stocks, emerging markets, small caps, and consumer discretionary stocks. While opinions vary, it is clear that the future of these investments will be influenced by factors such as economic trends, interest rates, and geopolitical developments. As always, investors should stay informed, diversify their portfolios, and be prepared to adapt their strategies in response to changing market conditions.