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Top Investment Trends For 2024

July 2, 2024

As January 2023 began, the American economy faced significant challenges from inflation and rising interest rates. These pressures intensified as the Federal Reserve increased rates four times—a move that was advantageous for savers but challenging for spenders.

Looking ahead to 2024, investors should consider these trends to align with their investment management goals, especially with the prospect of lower interest rates.

Savings Accounts Continue to Be Attractive

The Fed’s rate hikes have led to high-yield savings accounts offering annual percentage yields (APYs) of 5% or more. Even Treasury Bills offer over 5% returns. While rates may drop in the new year, affecting earnings on savings, having substantial savings remains crucial.

Investors might consider increasing their Roth IRA contributions and boosting automatic monthly savings contributions to prepare for the year ahead.

Partnering with a bank that values your worth and offers competitive APYs is also advisable. The era of negligible returns on savings and checking accounts is behind us.

Mergers and Acquisitions are Active

Increased merger and acquisition activity is another trend that is expected to persist. Management teams are more confident in making deals with reduced macroeconomic uncertainty, lower interest rates, and higher equity valuations. As of January 25, 2024, nearly $180 billion in announced deals had been made, almost double last year’s pace.

Significant deals include the $33 billion merger between Synopsys and ANSYS, BlackRock’s purchase of Global Infrastructure Management, and Sekisui House’s acquisition of MDC Holdings. This trend also benefits private equity managers and owners of closely held businesses looking to monetize investments.

The macroeconomic environment of stable inflation, declining policy rates, and solid corporate earnings growth create a favorable backdrop for multi-asset portfolios.

When You Think Stocks, Think Smaller

The top tickers in the S&P 500, including Google, Apple, and Tesla, have dominated the stock market due to their size and share-price gains. These heavy hitters trade at a premium—around 28.5 times earnings—while the remaining 490 stocks in the S&P 500 trade at approximately 17 times earnings.

In 2024, mid-and small-cap stocks, trading at a discount to historical rates, could offer promising opportunities.

This discount offers growth opportunities for investors willing to look beyond the top names. These smaller companies could experience accelerated earnings due to policy easing and post-pandemic supply chain improvements.

If You Have Assets, Consider Direct Indexing

Direct indexing can result in significant tax savings and diversify holdings beyond the S&P 500’s major players. Once costly and complex, this strategy is now accessible to more investors.

Direct indexing involves buying the individual stocks (or bonds) that comprise an index. This allows investors to emphasize certain stocks or sectors they favor and deemphasize those they are wary of.

Direct indexing is a valuable strategy for those with taxable assets, particularly for ongoing tax-loss harvesting, which is not applicable in retirement accounts.

Bonds Are Making a Comeback

When the Fed reduced pandemic-era interest rates to near zero, the housing market experienced a boom. Those who secured low mortgage rates now possess a rare financial advantage that may not be seen again.

Experts predict that higher interest rates are here to stay, which is favorable for long-term investors, particularly in the fixed-income market.

Economists expect the nominal median U.S. equity market to return to 4.2% to 6.2% over the next decade, potentially reviving interest in the traditional 60/40 portfolio. Regardless, 2024 looks promising for those with fixed-income allocations.

Types of Bonds to Watch

Short-term corporate bonds should be a priority for those looking to enhance their fixed-income holdings. Whether investing through an exchange-traded fund (ETF), mutual fund, or individual bonds, corporate bonds offer higher yields and lower risk compared to T-bills, which currently yield over 5%.

Given the uncertainty of the Fed’s next moves, short-term bonds can mitigate interest rate risk. While there’s still a reinvestment risk, it’s a manageable concern for prudent investors.

Health Care and Tech Poised for Success

The technology and healthcare sectors are rallying and are expected to continue this upward trend. Earnings are crucial for both sectors, and long-term trends look supportive. Last year, the healthcare sector experienced its first negative earnings growth due to the end of COVID-19-related spending surges.

Although analysts expect two more quarters of negative growth for the healthcare sector, the worst seems to be over, and the focus should be on potential positive shifts.

The expansion of GLP-1 weight loss drugs, an increase in M&A activity, and drug innovation could drive growth in the healthcare sector.

Technology has already emerged from its earnings recession, with the sector expected to achieve mid-teens earnings growth through 2025. The global artificial intelligence (AI) trend will be a significant driver, led by companies like Nvidia and Microsoft, which dominate the AI space and are a substantial portion of the S&P 500 technology sector.

These insights into current investment trends and strategies for 2024 reveal a dynamic landscape brimming with opportunities across various sectors and asset classes. Investors can navigate the financial markets and achieve their goals by staying informed and strategically positioning their portfolios.

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