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Published: Jan 03, 2024 11 min read

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This article is part of Money's new-year checklist — a 10-step guide to crushing your financial goals in 2024 (and beyond). For expert insights into the housing market, ways to save money on EVs and more, read our cover story.

As 2023 disappears in the rearview, there’s much to look forward to (or dread) in 2024. For investors, there’s a lot of uncertainty, too, adding anxiety to end-of-year portfolio rebalancing.

Since the pandemic, the market has seen its fair share of ups and downs. But the coming months will see the culmination of the Federal Reserve’s plans to right a beleaguered U.S. economy. How the Fed executes this landing will heavily influence how stocks perform.

Here’s a look at some investing experts’ big predictions for 2024.

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Interest rates hold the key to the market’s future

The likelihood of interest-rate cuts by the Federal Reserve in the next year could be a boon to the market.

The most recent slate of rate hikes began in March 2022 as a response to runaway inflation. Surging rates make it more expensive for banks to borrow money from each other — an effect that trickles down to the consumer in the form of higher loan rates, stricter lending requirements and increased rates of return on savings products.

“Higher interest rates can discourage investors from looking at riskier assets,” eToro investment analyst Callie Cox tells Money. That’s because they make buying things more expensive, which inherently decreases the buying power of money. It can also reduce the strength of corporate profits, as Cox adds, burning investors: “The value of [stockholders’] future profits, by extension, moves lower. That's why we've seen them pile into cash and look at bonds a little bit more.”

With the economy slowing toward levels the Fed deems appropriate (namely, a 2% inflation rate), it can begin to slash those rates — and incentivize banks, businesses and consumers alike to spend again. It’s clear this action will come at some point in 2024. The real debate among experts is over when the interest-rate cuts will start and how many there will be within the year.

Already, though, the stock market is beginning to see the perks of these rate cuts to come. Cox says the November rally, which lifted the S&P 500 index by about 9%, was driven by the expectation that rate hikes are finished and drops are on the way. On the flip side, CFRA’s chief analyst Sam Stovall suggested that a Fed decision to keep rates “higher for longer” could contribute to a “wall of worry” that’ll keep downward pressure on stocks until lower rates come along.

Recession fears will linger

If the Fed is able to lower rates at the right speed and right time, we’ll get the best-case scenario of a “soft landing,” which sees a cooldown with minimal negative impact on the economy. However, there’s fear that if the Fed mistimes its cuts, the economy could suffer a “hard landing” — a kinder word for recession.

Much of these worries have to do with the high interest rates putting too much pressure on the economy, but the concern is also tied to the job market because a robust workforce typically makes for a healthy financial environment. Put simply: When people have jobs, and therefore paychecks, they spend money.

“[When] you see cracks in the job market, you should be worried about economic slowdown, because consumer spending is 70% of the US economy,” Cox says.

While recent jobs reports suggest strength in total employment, there are signs of weakening as job openings decline. But even while a contraction in the economy would be costly for lots of folks, likely spurring job cuts and further decreases in spending, the general consensus is that a recession in 2024 would be less severe than recessions past.

“I think it’s very possible we get at least a mild recession,” Jason Betz, private wealth advisor at Ameriprise Financial, tells Money, adding that the resulting decreased corporate revenue will likely lead to job and pay cuts. “That said, companies are reasonably well capitalized, and if a recession comes, the Fed will probably quickly pivot.”

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Tech stocks will remain on investors’ minds

Much of the stock market’s future will depend on whether the economy achieves a soft landing or suffers a hard landing. Regardless, lots of eyes are on the tech sector specifically. Tech, especially the “Magnificent 7” that includes the likes of Apple, Amazon and Microsoft, have been a haven for the last two years, and they’re liable to stay on many investors’ radars in 2024.

The largest seven tech stocks are the most heavily weighted stocks in the S&P 500; when economic turmoil reared its head in 2021, lots of investors flooded into those large-cap stocks as safe havens from volatility elsewhere. Pair that with the artificial intelligence boom these companies have helped originate, and it’s unsurprising to see these stocks driving a 20% gain.

But are those big tech stocks overvalued? In his December note, Morningstar analyst David Sekera predicted that tech stocks are due to underperform in 2024 — with some exceptions.

“We think it’s a good time to move back to an underweighting [for tech] and take profits in those stocks that have become overvalued and overextended,” Sekera wrote. Betz agrees, telling Money that “tech stocks may have run too far and too fast” but that many of the companies are trading on high expectations for future earnings. “Time will tell,” he adds.

Fair-value arguments aside, these assets have been shelters for risk-averse investors, and if the risk of recession runs high for longer, they could very well continue to rise.

“Big tech is highly valued right now, but I think that's for a reason,” Cox says. “They’re some of the more durable companies on the market, and people have been worried about a recession. As they fear the future, they move into companies that they believe could survive a recession.”

A tug-of-war between cyclicals and staples

Another area of the market experts are keeping an eye on are cyclical stocks and staples. Cyclical stocks are discretionary stocks — companies that make products people tend to splurge on when the economy is doing well and scrimp on when it’s doing poorly. Staples are “defensive” stocks, and they include companies that make products people buy regardless of the economy’s health.

These two sectors are yin and yang, and investors tend to choose which way to invest based on recessionary fears.

“If we hit a soft landing, we could see cyclicals pick up on the back of that, and that might mean some money rotating out of big tech,” Cox says. “A lot of this depends on the signals we get from the job market and the Fed, but I wouldn’t be shocked to see the market rally broaden out.”

Those expecting economic turmoil in the near term say the opposite is likely. According to Shams Afzal, portfolio director for financial planner Carnegie Investment Counsel, the company expects that personal spending will fall as a result of student loan payment resumption, property tax increases, homeowner insurance premiums and more. The “weaker consumer” that results from this is likely to hamper cyclical, leisure-oriented stocks in the first half of the year before rate cuts begin, he says. Conversely, he predicts that staple stocks like pharmaceutical companies and food retailers will strengthen in this timeframe.

Financial services company Fidelity International took a similar stance in its November note, writing that “our base case for 2024 is a cyclical recession,” and adding that such a recession would benefit consumer staples above all others.

Little election-year stock drama

Of course, 2024 is an election year, which causes lots of buzz for obvious reasons. (For one, the presidential election seems to be shaping up to be a familiar showdown between incumbent Democrat Joe Biden and Republican predecessor Donald Trump.)

But will the election have a dramatic effect on your portfolio? According to experts, not really.

In a November election outlook report, JPMorgan reminded investors that regardless of who wins an election, the economy has continued to grow. And as far back as 1980, the bank says stocks have rallied in the year following an election, adding that “stock prices represent the profitability of the underlying companies more than the current political party.” That means investors shouldn’t get too caught up on irrelevant (read: political) factors.

Most of the volatility relating to election cycles has to do with policy platforms and their effects on specific industries. For example, health care policy points might affect health care stocks positively or negatively. These might matter for an investor who trades frequently, but for long-term holders, they won’t be a big deal.

“If you're a long term investor, 90% of these [election] risks don't matter for your portfolio,” Cox says. On the other hand, “if you're a shorter-term investor, you're probably going to be doing a lot of dodging.”

More from Money:

After a Huge Year for the Markets, Stocks Could Hit All-Time Highs Soon

When Are Taxes Due in 2024? Here Are the Deadlines You Need to Know

10 States Where Home Equity Increased the Most Over the Past Year

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