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Bullish Continuation in '24? 3 Market Areas to Watch
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As 2022 came to a close, investors were skeptical – to say the least. As inflation soared to 40-year highs, war broke out in Europe, a regional banking crisis gained steam and tech stocks got hammered, few Wall Street “experts” or talking heads predicted that stocks would have the bullish year they had. However, savvy investors have a way of looking past short-term gyrations in the stock market and understanding the context. While the future remains unwritten, if we look at a long-term chart of the S&P 500 Index, the past tells us that U.S. equities have an unvarnished track record of moving higher in the long term.
Can the strength in equities persist?
Seasonality, or the study of how equities act during different times of the year and periods during the four-year presidential cycle, was one of the most powerful tools of 2023. What does the fourth year of a new presidential cycle look like? Typically, the market digests gains early in the year, which would make sense considering the move investors enjoyed in 2023. However, using data dating back to 1950, stocks tend to rally strongly from the beginning of summer until year-end.
Image Source: Carson Research
If you believe like I do the answer to that question is yes, below are 3 market areas that should outperform dramatically over the next 12 months:
Semiconductors & AI Related Stocks
Last year, Microsoft’s ((MSFT - Free Report) ) ChatGPT became the fastest-growing consumer app in history to reach one million users, outpacing Alphabet’s ((GOOGL - Free Report) ) Google, Meta Platform’s ((META - Free Report) ) Instagram, and Twitter (now called X). While the unprecedented growth of AI thus far is impressive, researchers believe the growth will snowball in the coming years from its current value of ~$100 billion to $2 trillion by 2030 (20x!).
Image Source: Precedence Research
Nvidia ((NVDA - Free Report) ), the leading chip maker fueling AI, is a top stock to watch in 2024. This week, the stock notched fresh 52-week highs, and for 2024, the company is slated to achieve EPS growth of 268% year-over-year – unheard of for a company of its size.
Image Source: Zacks Investment Research
Biotech & Healthcare
After years of underperformance and lack of interest from investors, biotech stocks and healthcare stocks are back in the spotlight for three reasons:
· M&A is Picking Up: Mergers and acquisitions in an industry indicate a proactive approach to growth and reflect positively on the overall health of an industry. In the past few months, Karuna () was bought Bristol Myers Squibb ((BMY - Free Report) ) in a $14 billion deal (53.5% premium). This week, Cytokinetics (CYTK) rose on reports of a buyout by drug giant Novartis ((NVS - Free Report) ).
· Drug Breakthroughs: Several big breakthroughs have occurred recently, such as Novo Nordisk’s ((NVO - Free Report) ) blockbuster Ozempic, a weight loss drug.
· Valuations: The iShares Biotechnology ETF ((IBB - Free Report) ) is trading at the same level as in May 2020.
Small Caps
The Russell 200 Index ETF ((IWM - Free Report) ) is in the middle of its longest drawdown in history. However, late in 2023, IWM went from a 52-week low to a 52-week high in under 50 days – a sign that bullish momentum has returned to this area of the market.
Image Source: TradingView
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Bullish Continuation in '24? 3 Market Areas to Watch
As 2022 came to a close, investors were skeptical – to say the least. As inflation soared to 40-year highs, war broke out in Europe, a regional banking crisis gained steam and tech stocks got hammered, few Wall Street “experts” or talking heads predicted that stocks would have the bullish year they had. However, savvy investors have a way of looking past short-term gyrations in the stock market and understanding the context. While the future remains unwritten, if we look at a long-term chart of the S&P 500 Index, the past tells us that U.S. equities have an unvarnished track record of moving higher in the long term.
Can the strength in equities persist?
Seasonality, or the study of how equities act during different times of the year and periods during the four-year presidential cycle, was one of the most powerful tools of 2023. What does the fourth year of a new presidential cycle look like? Typically, the market digests gains early in the year, which would make sense considering the move investors enjoyed in 2023. However, using data dating back to 1950, stocks tend to rally strongly from the beginning of summer until year-end.
Image Source: Carson Research
If you believe like I do the answer to that question is yes, below are 3 market areas that should outperform dramatically over the next 12 months:
Semiconductors & AI Related Stocks
Last year, Microsoft’s ((MSFT - Free Report) ) ChatGPT became the fastest-growing consumer app in history to reach one million users, outpacing Alphabet’s ((GOOGL - Free Report) ) Google, Meta Platform’s ((META - Free Report) ) Instagram, and Twitter (now called X). While the unprecedented growth of AI thus far is impressive, researchers believe the growth will snowball in the coming years from its current value of ~$100 billion to $2 trillion by 2030 (20x!).
Image Source: Precedence Research
Nvidia ((NVDA - Free Report) ), the leading chip maker fueling AI, is a top stock to watch in 2024. This week, the stock notched fresh 52-week highs, and for 2024, the company is slated to achieve EPS growth of 268% year-over-year – unheard of for a company of its size.
Image Source: Zacks Investment Research
Biotech & Healthcare
After years of underperformance and lack of interest from investors, biotech stocks and healthcare stocks are back in the spotlight for three reasons:
· M&A is Picking Up: Mergers and acquisitions in an industry indicate a proactive approach to growth and reflect positively on the overall health of an industry. In the past few months, Karuna () was bought Bristol Myers Squibb ((BMY - Free Report) ) in a $14 billion deal (53.5% premium). This week, Cytokinetics (CYTK) rose on reports of a buyout by drug giant Novartis ((NVS - Free Report) ).
· Drug Breakthroughs: Several big breakthroughs have occurred recently, such as Novo Nordisk’s ((NVO - Free Report) ) blockbuster Ozempic, a weight loss drug.
· Valuations: The iShares Biotechnology ETF ((IBB - Free Report) ) is trading at the same level as in May 2020.
Small Caps
The Russell 200 Index ETF ((IWM - Free Report) ) is in the middle of its longest drawdown in history. However, late in 2023, IWM went from a 52-week low to a 52-week high in under 50 days – a sign that bullish momentum has returned to this area of the market.
Image Source: TradingView