2023 proved to be a triumphant year for the stock market, with the broad market S&P 500 Index and its tracking ETFs, such as the SPDR S&P 500 ETF SPY and the iShares Core S&P 500 ETF IVV,
closing the year with impressive 25% gains.
The star performers attributing to last year’s stock market returns were the Technology sector, ramping up over 55% on aggregate, and the Communication Services sector, ascending by approximately 50% on average. With investors now yearning to discover which sectors will soar in 2024.
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Fidelity’s sector managers believe that the leading and lagging sectors in 2024 will primarily hinge on macroeconomic considerations. If the U.S. can dodge a recession and achieve a ‘soft landing,’ the sectors poised for strong potential lie in the following cyclical sectors:
- Materials
- Industrials
- Consumer Discretionary
Materials Sector Outlook
The materials sector typically mirrors the economic cycle, riding the waves of overall economic growth. Despite displaying positive yet sluggish returns last year due to recession concerns, historically, it has excelled during early phases of economic upswings, making it ripe for potential recovery.
Fidelity sees long-term investment potential in several segments of the sector that have exhibited favorable supply-and-demand dynamics, including copper miners and U.S. chemical manufacturers.
The Materials sector is broadly tracked by the Materials Select Sector SPDR ETF XLB and the Vanguard Materials ETF VAW.
Industrials: Forecast and Opportunities
The industrial sector witnessed positive, albeit lagging returns compared to the S&P 500 in 2023 due to investor focus on specific mega-cap growth stocks. Fidelity foresees long-term growth in various industrial segments driven by investments in onshoring, infrastructure, and sustainability.
An improved U.S. economy could provide a short-term boost. Opportunities for 2024 include commercial aerospace, utilities infrastructure, residential construction, and shipping companies within this sector.
The Industrials sector is broadly tracked by the SPDR Select Sector Fund – Industrial XLI and the Vanguard Industrials ETF VIS.
Consumer Discretionary Sector Analysis
The resilience of U.S. consumers throughout 2023 notably contributed to the improved performance of the consumer discretionary sector.
Looking ahead to 2024, Fidelity believes this sector’s trajectory might still hinge on broader factors like the economy’s health and interest rate trends. Retailers with appealing valuations and defensive business strategies, potentially shielding them from economic downturns, are the ones that could stand out.
The Consumer Discretionary sector is tracked by the SPDR Select Sector Fund – Consumer Discretionary XLY and the Vanguard Consumer Discretion ETF VCR.
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