Written by: Alleson Tate, CFP® on January 4, 2024
You would be hard pressed to find any expert in January 2023 who said the S&P 500 would be up 24% for the year. Yet, that’s just what happened. It feels like 2023 was revenge for the negative returns of 2022. People made money in just about every asset class last year except commodities.
2024 is expected to bring Fed rate cuts, lower inflation, no recession, slower global growth, heightened geopolitical risks and uncertainty as it’s an election year (oh joy!). The Magnificent Seven mega cap tech stocks that ruled 2023–Nvidia, Microsoft, Apple, Google, Amazon, Tesla, and Meta are overvalued (aka expensive). Given their high valuations (they are roughly 38% more expensive than normal), it begs the question how attractive their risk-return profile is for 2024. That said, those seven are still expected to outpace the remaining 493 stocks in the S&P 500 next year.
For 2024, Goldman Sachs is calling for a 6% increase in the S&P 500; while, JP Morgan is calling for a 8% decline in the S&P 500. As you can see, it’s anyone’s guess where we will end up. Continue to expect the unexpected.
One thing is certain, when (not if) the Fed cuts interest rates the 4-5% yield you’re receiving today on cash and cash equivalents is going down. If you parked cash in a high yield account because you were uncertain where the market was going, develop a plan to transition the cash to equities this year.
Your goal should be to create a diversified investment portfolio with exposure to companies of all sizes domestic and foreign. No style or region has a patent on wealth creation. Having foreign exposure could prove beneficial this year as Europe has an improved economic backdrop and outperformance in Japanese markets is expected to continue (despite the recent earthquake). You should have exposure to these geographical locations as the Magnificent Seven could see some downward pressure from high valuations. US companies that prioritize dividends, have strong balance sheets, and lower floating rate debt will be more attractive. I’m talking about large cap value stocks. You see, 2024 is shaping up to be a year where portfolio balance is preeminent.
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*This post is for informational purposes only. It is not intended to be financial or tax advice. Please consult a licensed professional.