2023 was a stellar year for the stock market, with the S&P 500 Index, and ETFs mirroring its performance such as SPDR S&P 500 ETF (SPY), iShares Core S&P 500 ETF (IVV), and Vanguard S&P 500 ETF (VOO) concluding the year with a 25% surge.
The surge in last year’s stock market returns was predominantly driven by the Technology sector, soaring over 55% on average, and the Communication Services sector, witnessing about a 50% rise. Investors are now pondering which sectors will stand out in 2024.
Also Read: Soft Landing? Don’t Bet On It Just Yet: Fed’s Barkin Indicates Further Rate Hikes Possible
According to Fidelity’s sector managers, the sectors taking the lead and those trailing behind may hinge largely on macroeconomic considerations. If the U.S. evades a recession and achieves a ‘soft landing,’ the most compelling potential opportunities for this year lie in the following cyclical sectors:
- Materials
- Industrials
- Consumer discretionary
Materials: A Dawn of Recovery
The materials sector usually aligns with the economic cycle, riding the waves of overall economic growth. Although the sector showed positive yet slow returns last year due to worries about a possible recession, historically, it has excelled during early phases of economic upswings, making it primed for potential recovery.
Fidelity sees long-term investment potential in a number of segments of the sector that have shown favorable supply-and-demand dynamics, including among 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: Potential for Uptick
The industrial sector witnessed positive, but lagging returns compared to the S&P 500 in 2023 due to investor focus on specific mega-cap growth stocks. Fidelity sees long-term growth in various industrial segments being fueled 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.
Broadly, the Industrials sector is tracked by the SPDR Select Sector Fund – Industrial (XLI) and the Vanguard Industrials ETF (VIS).
Consumer Discretionary: Navigating Uncertainties
The resilience of U.S. consumers throughout 2023 notably contributed to the consumer discretionary sector’s improved performance.
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).
Now Read: US Economy Set For ‘Soft Landing’ As Economists Eye Fed Rate Cuts
Photo: Shutterstock
