Investing themes to watch in 2024: Magnificent 7, small caps, quick shifts, and more


The “Magnificent Seven” stocks — Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Nvidia (NVDA), and Tesla (TSLA) — are the big drivers of this year’s market rally. With five weeks left in 2023, the S&P 500 (^GSPC) is up 19%.

Investors scooped up shares of megacap tech names throughout the year amid macro uncertainty, driven in part by the Fed’s aggressive interest rate hiking campaign.

Looking ahead to 2024, strategists are split on future returns. Morgan Stanley’s Mike Wilson, a staunch bear, sees stocks essentially flat while Goldman Sachs’ David Kostin sees limited upside, predicting the benchmark index will reach 4,700 by the end of 2024.

On the other hand, Bank of America and RBC strategists are more bullish. Bank of America’s Savita Subramanian and her team forecast the S&P 500 to reach a record of 5,000 as investors move beyond “maximum macro uncertainty.” RBC’s Lori Calvasina also sees the S&P 500 reaching 5,000, writing in a note to clients: “Our valuation and sentiment work are sending constructive signals.”

So what does all this mean for investors’ playbooks in 2024? Yahoo Finance Live put that question to some Yahoo Finance Live regulars — here’s a roundup of some big ideas and themes to consider for 2024.

Do you stick with the Magnificent 7 in 2024?

The “Magnificent Seven” mega-cap stocks played an outsized role in this year’s rally. The group has a combined weighting of 28% in the S&P 500, so their outperformance, largely driven by excitement surrounding artificial intelligence, dominated the performance of the broader index.

But whether or tech still has room to run is a hotly debated subject on Wall Street.

DoubleLine CEO Jeffrey Gundlach is in the bear camp, warning investors that the group will be among the “worst performers in the upcoming recession.”

“Whatever is leading the charge going into the economic downturn invariably must lead the charge on the way down. I would get out of them,” Gundlach said at Yahoo Finance’s Invest conference earlier this month.

His advice for investors: “Go into an equal-weighted basket as opposed to a market-weighted basket … and gradually diversify. … In particular, I would start thinking about emerging markets once the dollar index starts to fall, which has not happened yet. But it’s going to happen in the next recession.”

Read more: How to start investing: A step-by-step guide

But others, including Goldman Sachs chief US equity strategist David Kostin, see the megacap group outperforming once again.

“The 7 stocks have faster expected sales growth, higher margins, a greater re-investment ratio, and stronger balance sheets than the other 493 stocks and trade at a relative valuation in line with recent averages after accounting for expected growth,” Kostin wrote in the firm’s 2024 outlook.

A person watches an electronic stock board showing Japan's Nikkei 225 index at a securities firm in Tokyo.

Emerging markets could be a stronger investing theme in 2024, some strategists say. (AP Photo/Eugene Hoshiko, File) (ASSOCIATED PRESS)

2024 ‘should be better’ for emerging markets

China’s stock market has struggled this year amid a lackluster economic recovery. The MSCI China Index has fallen more than 9% since Jan. 1.

But that could change in 2024, according to Charles Schwab strategist Jeffrey Kleintop.

Kleintop cited corporate investment in China, productive talks between President Biden and Chinese leader Xi Jinping, and economic stimulus as reasons to be more optimistic on the region.

“Broader support across the markets in Asia is really interesting right now. … That’s where I’m finding more opportunities and lower valuations,” Kleintop told Yahoo Finance Live. “Companies that are braced for a more different economic environment and one that I think we’re likely to see in 2024.”

While Kleintop’s outlook for China is brighter, he does caution investors to prepare for a “bumpy ride” given China’s historical volatility and unique challenges.

For specific plays, UBS strategist Andrew Garthwaite sees beaten-down Chinese internet stocks set for a turnaround. Garthwaite wrote in the bank’s 2024 outlook that the group’s “performance has lagged EPS momentum.”

Smalls caps and other ‘cheap interest rate sensitive plays’

Hard-hit areas of the market are a buying opportunity for investors as the Federal Reserve halts its rate-hiking campaign, according to eToro strategist Ben Laidler.

“The further we get into next year and the closer we get to the Fed cutting, look at those cheaper interest rate sensitive plays like real estate, banks, and small caps,” Laidler told Yahoo Finance.

October’s cooler inflation data prompted traders to move up expectations for Fed rate cuts to May, sending small caps surging earlier this month. The Russell 2000 (^RUT) rose over 5% last week.

Laidler’s comments on small caps were echoed by RBC capital markets head of US equity strategy Lori Calvasina. Calvasina told Yahoo Finance earlier this month that easing cycles typically help small caps. She and her team at RBC view the group as well positioned for the longer term.

“They tend to lag late in economic cycles and so there’s really a sense when times get dicey that’s when you want to go bargain hunting in the small-cap space,” Calvasina added.

Consumer discretionary stocks a ‘top idea’ for 2024

The S&P 500 is set to reach a new record by June of next year and consumer discretionary is a top way to play the index’s gains, JPMorgan Private Bank US equity strategist Abby Yoder told Yahoo Finance Live.

“You have all of these bears coming out saying the consumer is slowing, which we do agree with, but it’s slowing from very, very high levels,” Yoder said. “The sector has already been through an earnings recession period. … We expect a reacceleration on the top line along with margin support.”

It’s a contrarian call given the long list of retailers warning about a weakening consumer this holiday season. Best Buy, Macy’s, Walmart, and Target were among those flagging a shift in spending trends amid persistent inflation.

‘Be ready to shift’ your investment strategy

Starting the year with an investment plan always makes sense, but given uncertainty about interest rates, along with heightened geopolitical risk and the upcoming 2024 election, Truist chief market strategist Keith Lerner is wary about what’s ahead.

“Be ready to shift,” Lerner told Yahoo Finance. “We have all these remaining crosscurrents still in place — lagged impact of Fed policy, the election year, geopolitics, and ultimately which way the economy breaks. … This will likely force investors to be more tactical.”

If 2023 is a guide, it’s nearly impossible to predict the future. Unforeseen events prompted forecasters to adjust their outlooks and strategies on numerous occasions throughout the year. Remember, many CEOs, economists and strategists were convinced a recession was on the horizon, and nearly a year later, we still have yet to see it.

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email seanasmith@yahooinc.com.

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