After a prosperous 2023 for the stock market, with the S&P 500 Index and ETFs such as the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the Vanguard S&P 500 ETF (VOO) gaining 25%, investors are now eyeing the potential sectors that could shine in 2024.
The standout sectors of 2023 were Technology and Communication Services, experiencing impressive growth of over 50%. Now, industry insiders are forecasting the sectors to watch for in the upcoming year.
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Fidelity’s sector managers anticipate that the sectors likely to lead, and those potentially facing challenges, will largely hinge on macroeconomic circumstances. If the U.S. avoids a recession and achieves a ‘soft landing,’ the most compelling potential opportunities for this year lie in the cyclical sectors of Materials, Industrials, and Consumer Discretionary.
- Materials
- Industrials
- Consumer discretionary
Materials
The materials sector typically aligns with the economic cycle, rising and falling with overall economic growth. Although it displayed slow returns last year due to recession fears, it has historically thrived during early economic upswings, making it ripe for a potential recovery.
Fidelity identifies long-term investment potential in segments of the sector with favorable supply-and-demand dynamics, including copper miners and U.S. chemical manufacturers.
The Materials sector is widely tracked by the Materials Select Sector SPDR ETF (XLB) and the Vanguard Materials ETF (VAW).
Industrials
The industrial sector witnessed positive, albeit lagging returns compared to the S&P 500 in 2023, mainly due to investor focus on specific mega-cap growth stocks. Fidelity foresees long-term growth in various industrial segments 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.
The Industrials sector is monitored by the SPDR Select Sector Fund – Industrial (XLI) and the Vanguard Industrials ETF (VIS).
Consumer Discretionary
The resilience of U.S. consumers throughout 2023 significantly 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 monitored by the SPDR Select Sector Fund – Consumer Discretionary (XLY) and the Vanguard Consumer Discretion ETF (VCR).
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