As the final trading day of 2023 is approaching, it’s becoming evident that this year has been remarkably successful for Wall Street despite occasional ups and downs. The three primary stock market indices logged an astounding surge toward the end of the year, repeatedly hitting record highs.
This impressive performance has been driven by a surge in technology stocks, a decrease in inflationary pressures, and the growing belief that the Federal Reserve has concluded its interest rate hikes. The talks are doing rounds that the Fed may cut rates by 75 bps by the end of 2024.
Among these indices, the Nasdaq Composite has turned out as the top performer, scoring a gain of 44.3%. In the same period, the S&P 500 has climbed by 24.5%, while the Dow Jones Industrial has advanced by 13.6%. It appears that this robust upward trend is poised to carry over into the New Year.
In this pursuit, investors can play top-ranked stocks like Sunoco SUN, New Gold NGD, Hooker Furniture Corporation HOFT, Molson Coors TAP and NVIDIA NVDA.
What Lies Ahead for the S&P 500?
Fundstrat’s head of research Tom Lee projects that the S&P 500 benchmark index will end 2024 at 5,200 as slumping inflation leads to easing financial conditions. The U.S. economy would once again be able to avoid a recession, as quoted on Yahoo Finance. Deutsche Bank and BMO Capital expect the index to hit the 5,100-mark by the end of next year.
Moreover, Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets and Bank of America’s Savita Subramanian believe that the S&P 500 may hit 5,000 by the end of 2024, as quoted by MarketWatch and published on Morningstar. Goldman Sachs, too, raised its S&P 500 price target for 2024 to 5,100 from 4,700 in late December.
Fed to Turn Dovish: Tap Dividend Stocks
In the latest meeting, Federal Reserve Chair Jerome Powell hinted at a major policy shift as inflation is easing and the economy is holding up better. He signaled three rate cuts for next year compared with the previous forecast of two rate cuts in 2024.
The federal funds rate is expected to be in the range of 4.4-4.9%, down from the current 5.25% to 5.50%. This indicates that the Fed will cut rates by a total of 0.75% next year, indicating that the historic rate-hiking campaign might be ending.
As dividend stocks perform better in a low-rate environment, investors can play Zacks Rank #1 (Strong Buy) master limited partnership Sunoco (yields 5.57%). The stock has a VGM Score of A. Sunoco LP’s prime business comprises the distribution of motor fuel to roughly 10,000 customers that include independent dealers, commercial customers, convenience stores as well as distributors.
U.S. Dollar Likely to Fall: Gold to Glitter
The U.S. dollar is on its way to log the first negative year since 2020 as the Fed started offering dovish cues. We expect the greenback to lose more strength in 2024, which would be a great thing for gold investing. A weak dollar makes bullion cheaper for overseas buyers, thereby driving gold prices higher.
The allure of gold has already returned in recent months on a decline in bond yields and a weaker U.S. dollar. Lower interest rates are usually good for the non-interest-bearing asset gold.
Given the optimism, investors can play Zacks Rank #2 (Buy) New Gold. The stock, which has a VGM Score of A, is focused on the exploration and development of the Afton Copper-Gold Project, located 6 miles west of Kamloops, British Columbia.
Make Big Bets on Pint-Sized Stocks
Small-cap stocks should rally ahead due to cheaper valuation, cooling inflation data and hopes of Fed rate cuts in 2024. Decent GDP growth momentum and a resilient consumer base also support the rally in small-cap stocks. Apart from these, other factors are also contributing to the rally in small-cap stocks.
Per strategists, the valuation gap between large and small-cap companies, as well as private and public markets, suggests that merger and acquisition activity may pick up. Companies may find it more attractive to acquire smaller, faster-growing firms, taking advantage of the valuation discrepancy (read: 5 Reasons Why Small-Cap Stocks Can Surge in 2024: 5 Top Picks).
Hooker Furniture Corporation is a leading manufacturer and importer of residential furniture, primarily targeted at the upper-medium price range. The company offers diversified products, consisting primarily of home office, entertainment centers, imported occasional, bedroom and wall systems, across many style categories within this price range. This Zacks Rank #1 company has a VGM Score of A.
Easing Inflation: A Plus for Consumer Discretionary Sector
When inflation falls, certain sectors of the economy often stand to benefit more than others. Consumer Discretionary is one of them. The Consumer Discretionary sector includes companies involved in non-essential goods and services, such as luxury items, automobiles, and entertainment. Lower inflation means that consumers have more purchasing power, which can lead to increased spending on these non-essential items.
Hence, investors can dip their toes in alcoholic beverage companies like Molson Coors. It is a global manufacturer and seller of beer and other beverage products and has an impressive diverse portfolio of owned and partner brands. The Zacks Rank #1 company has a moderate VGM Score of B.
Last But Not the Least: AI to Keep Ruling
In 2023, the technology industry emerged as the most lucrative, largely due to the explosion in artificial intelligence (AI), a less-hawkish Fed, and a significant rise in the value of the “Magnificent Seven” stocks. Moreover, the recent surge in this sector has been fueled by speculation that the Fed’s intensive campaign of raising interest rates may soon end. Since the tech sector often depends on loans for accelerated growth, lower interest rates make it more affordable to secure additional funding for various projects.
The AI enthusiasm is anticipated to persist into 2024, as numerous experts contend that the AI initiatives of market leaders are still booming. It is expected that further breakthroughs and developments are in the cards. As an AI bet, investors can bet on Zacks Rank #2 NVIDIA. The stock has a moderate VGM Score of C.
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