The Magnificent Seven: What’s in Store for the Market in 2024?

As the year comes to a close, investors are divided on the future of the market. Will the “Magnificent Seven” continue to dominate, or are there new opportunities on the horizon?

The “Magnificent Seven” stocks, comprising 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 debating the potential returns. While some strategists predict limited upside, others are more bullish, forecasting new record highs for the benchmark index. As the market enters a new year, investors are considering their playbooks and weighing the prospects of sticking with the “Magnificent Seven” or exploring new opportunities.

The Debate on 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. Their outperformance, driven by excitement surrounding artificial intelligence, has dominated the broader index. However, the question of whether tech stocks still have room to run is a hotly debated topic on Wall Street. While some, like Goldman Sachs’ David Kostin, see the megacap group continuing to outperform, others, like DoubleLine CEO Jeffrey Gundlach, believe they will be among the worst performers in an upcoming recession.

Emerging Markets: A Stronger Investing Theme

China’s stock market has struggled this year, 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 to be more optimistic about the region. Kleintop suggests that broader support across Asian markets presents interesting opportunities with lower valuations. However, he also warns investors to prepare for a potentially bumpy ride given China’s historical volatility and unique challenges.

Small Caps and Cheap Interest Rate Sensitive Plays

Areas of the market that have been hard-hit could present buying opportunities for investors as the Federal Reserve halts its rate-hiking campaign. eToro strategist Ben Laidler suggests looking at cheaper interest rate sensitive plays like real estate, banks, and small caps as the Fed gets closer to cutting rates. The recent cooler inflation data and expectations for rate cuts have already sent small caps surging. RBC capital markets head of US equity strategy Lori Calvasina also sees small caps as well-positioned for the longer term, as they tend to lag late in economic cycles and become attractive during uncertain times.

Consumer Discretionary Stocks: A Top Idea for 2024

Despite concerns about a slowing consumer, JPMorgan Private Bank US equity strategist Abby Yoder sees consumer discretionary stocks as a top way to play the market’s potential gains. Yoder points out that while the consumer may be slowing, it’s coming from high levels, and the sector has already been through an earnings recession period. She expects a reacceleration on the top line along with margin support. This contrarian call goes against the warnings from several retailers about a weakening consumer this holiday season.

Be Ready to Shift Your Investment Strategy

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 in the market, including the lagged impact of Fed policy, geopolitics, and the direction of the economy. These factors will likely force investors to be more tactical in their approach to navigate the changing landscape.

Conclusion: As 2023 comes to a close, investors are divided on the future of the market. The performance of the “Magnificent Seven” stocks has been a driving force behind this year’s rally, but the debate on their future continues. Some strategists see them continuing to outperform, while others warn of potential underperformance in an upcoming recession. Meanwhile, emerging markets, small caps, consumer discretionary stocks, and cheaper interest rate sensitive plays present alternative opportunities for investors in 2024. With uncertainty still prevalent, investors will need to remain agile and ready to adapt their strategies to navigate the ever-changing market landscape.