The S&P 500 is up 20%. Nasdaq 100: 46%. Artificial Intelligence darling Nvidia is up — wait for it — 220%. Could 2024 be any better for investors than 2023? Yes, according to the latest Bloomberg Markets Live Pulse survey.
This year was a very good one for stock market investors. Individual stocks such as Microsoft, Amazon.com and Meta Platforms leapt 56%, 75%, or even 170%, as the promise of AI grabbed the imagination.
But, some caveats notwithstanding, MLIV respondents predict next year will be even better. Some 63% of 595 survey participants expect their investments to deliver a stronger performance. That optimism hinges on the assumption that the Federal Reserve will cut interest rates, fuelling rallies in stock and bond markets.
Respondents, including portfolio managers and individual investors, also see AI as a long-term source of profits, outpacing the gains in share prices of weight-loss drug producers like Novo Nordisk and Eli Lilly & Co, or cybersecurity providers.
Many said that losses related to spiking inflation and rising borrowing costs earlier this decade taught them hard lessons and positioned them to become better investors in the future. “My strategy is making less mistakes,” said one respondent. “Better research,” wrote another.
With the stock market, euphoria is fuelled mainly by the expectation of lower interest rates in the not-too-distant future. Respondents recognise that sticky inflation is the key threat to that scenario, as it would prevent the Fed from cutting.
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On a personal level, a higher cost of living was cited as the greatest risk to one’s financial health in 2024 by 49% of respondents. While the year-over-year inflation rate has been decelerating, prices for groceries and electricity have been up 25% since January 2020, used car prices have risen 35%, and rents have climbed about 20%.
In write-in comments, some people cited unexpected medical expenses as their biggest worries. More specific risks mentioned were insurance in the Florida market and unfavourable trends in financial industry compensation.
Promising movement
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AI is by far the trend investors said holds the most promise for their personal investments over the next decade, with 67% choosing it over cybersecurity, which got the nod from 20% of respondents. Weight-loss drugs are getting big headlines, but only 8% of respondents said the medicines held the most promise.
A top-performing European fund manager, Niall Gallagher, who runs an equity fund for GAM Investments, cut a position in Novo Nordisk by about half in the past few months, he told Bloomberg, in part to reflect the spike in valuations for appetite-suppressing medications. Novo Nordisk’s stock price is up about 50% in 2023.
While Gallagher pointed to a lot of hype around weight-loss treatments now, he said he remained optimistic about Novo Nordisk’s prospects over the medium-to-long term.
The sentiment around the other big trend — big tech — is divided. Many respondents — 45% — view investing in big tech in 2024 as a bet on growth, and 16% consider the stocks a safe haven. But 39% said it’s a bad bet and the stocks are overvalued. This year’s scorching returns in tech have the sector “trading at or near the least compelling valuation of any US sector,” said Marta Norton, chief investment officer for the Americas at Morningstar Wealth.
Morningstar Wealth’s analysis “suggests that the US tech sector has baked in an AI-fuelled boost” in long-term revenue growth assumptions of about 200 basis points per annum, “as well as a margin increase of around 300 basis points” over 10 years, said Norton. “This perspective doesn’t ensure that we can’t see continued strong sentiment for technology in 2024, but it isn’t a bet we’d like to make right now.”
Election effect
A majority of investors, at 57%, anticipate changing their asset allocation in 2024, with 31% planning to move more money into fixed income and 26% saying they’d beef up their weighting in equities. Some of that money will come from any raise or bonus in 2024, with 52% saying they’d plough most of it into stocks or bonds.
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Cash also has appeal, though. Nearly a quarter of respondents would keep much of any bonus in cash, and 19% would use it to catch up on bills or pay down debt. Only 5% would splurge on something big, like a car or vacation. Overall, 38% of respondents expect to save more next year, and less than a fifth anticipate saving less.
Many respondents view the upcoming presidential election as a non-event for their finances, with 47% expecting the November elections won’t significantly impact them. Of the remaining respondents, 27% said a victory of former President Donald Trump would have a worse impact on their finances, and 26% said President Joe Biden’s re-election would be worse.
On average, the S&P 500 gains about 7.5% in presidential election years, below trend and lower than a typical 13.5% return for the third year of a presidency, according to a recent report from Lori Calvasina, head of US equity strategy at RBC Capital Markets.
The typical pattern, Calvasina noted in the report, is for a weak start to the year, a rally leading into fall, choppy markets approaching election day, and a rally after the election. Calvasina has a year-end target of 5,000 for the S&P 500 next year, a gain of about 9%.
“Any given presidential election year is a source of uncertainty for the US equity market,” wrote Calvasina. “Given all of the unusual aspects of the 2024 contest, that seems like an appropriate way to think about the political backdrop for stocks in 2024.” — Bloomberg
