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Wall Street had a dream run in 2023 reversing the nightmare of 2022. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — were up 13.7%, 23.9% and 43.4%, respectively. In 2022, the Dow, the S&P 500 and the Nasdaq Composite plummeted 8.8%, 19.4% and 33.1%, respectively.
However, market participants remain concerned about whether the U.S. stock market bull run will continue in 2024. The first three trading days of this year have witnessed significant volatility and a sharp decline in all three major stock indexes. Investors are uncertain as to when the first rate cut will materialize.
Bull Run to Continue in 2024
The impressive bull run is set to continue in 2024. The Fed’s December FOMC meeting minutes clearly indicate a sizable percentage of cut in the benchmark interest rate this year. A rate hike is a remote possibility as the majority of FOMC members want to see the full effect of existing interest rate range of 5.25-5.5%. The inflation rate has been dwindling steadily since June 2022.
A lower interest rate regime will boost economic growth speeding up investment by businesses. In 2022, small-cap companies suffered from record-high inflation, a soaring interest rate and fear of an impending recession. However, in 2023, this segment of the economy found some relief from these three concerns. The rate cut will further boost mid and small-sized enterprises.
A lower interest rate regime will be beneficial high-growth sectors like technology and consumer discretionary. Several companies in these spaces depend on cheap source of credit as the full potential of their business is realized over a long period. A low risk-free interest rate will reduce the discount rate thereby increasing the net present value of investment in these stocks.
The global supply-chain system has been restoring slowly since last year as U.S. corporate behemoths are rescheduling their supply-chain system’s bypassing of China. Moreover, the fundamentals of the U.S. economy remain firm despite record high-inflation and interest rate. The latest report of the Atlanta Fed projected that the U.S. GDP would grow 2% in fourth-quarter 2023.
Finally, a preliminary estimate revealed that a massive $1.4 trillion entered U.S. money market funds primarily due to an extremely high interest rate regime, with cash yielding around 5%. A systematic decline in the market interest rate will shift a major part of these gigantic funds to equity markets.
Buy on the Dip
Market participants are surprised to see such an impressive bull run in 2023. Consequently, a large section of investors has already said that U.S. stock markets will remain muted in 2024 as valuation is stretched.
At this stage, investors should wait for a proper time to enter the market. The long-term trend of Wall Street is very much bullish. However, markets are likely to fluctuate in the short-term due to profit booking on stretched valuation or unforeseen external disturbances like geopolitical conflicts or erratic behavior of energy prices.
In this regard, every dip will be a good buying opportunity even for those stocks that have skyrocketed in 2023 and have strong potential for 2024 and beyond. Investors sometimes invest in overbought stocks due to the FOMO (fear of missing out) factor. Instead, they should apply a SIP (systematic investment plan) strategy.
Select bold stocks, especially stocks of those companies that are market leader in their respective sectors. Use every dip in these stock prices to form a formidable portfolio over a period of time. At the end of the year, this portfolio is likely to beat average market returns.
How to Pick the Right Stocks
At this stage, several stocks look attractive for future growth. However, selecting the following four criteria will make the task easy. First, select U.S. corporate bigwigs (market capital > $100 billion) that have a well-established business model and globally acclaimed brand recognition.
Second, look for stocks that have strong growth potential for 2024 and beyond. Third, select stocks have seen positive earnings estimate revisions in the last 60 days. Fourth and most importantly, pick stocks that carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The five stocks that fulfill these criteria, despite stretched valuation, are:
General Electric Co. (GE - Free Report) has an expected revenue and earnings growth rate of 8.6% and 69.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the last 60 days.
Microsoft Corp. (MSFT - Free Report) has an expected revenue and earnings growth rate of 14.4% and 13.6%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last seven days.
Amazon.com Inc. (AMZN - Free Report) has an expected revenue and earnings growth rate of 11.7% and 34%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2% over the last 30 days.
Alphabet Inc. (GOOGL - Free Report) has an expected revenue and earnings growth rate of 11.3% and 15.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 30 days.
Netflix Inc. (NFLX - Free Report) has an expected revenue and earnings growth rate of 13.9% and 32.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 30 days.
The chart below shows the price performance of five above-mentioned stocks in the past year.
Image Source: Zacks Investment Research
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Best Investment Strategy for 2024: Buy on the Dip
Wall Street had a dream run in 2023 reversing the nightmare of 2022. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — were up 13.7%, 23.9% and 43.4%, respectively. In 2022, the Dow, the S&P 500 and the Nasdaq Composite plummeted 8.8%, 19.4% and 33.1%, respectively.
However, market participants remain concerned about whether the U.S. stock market bull run will continue in 2024. The first three trading days of this year have witnessed significant volatility and a sharp decline in all three major stock indexes. Investors are uncertain as to when the first rate cut will materialize.
Bull Run to Continue in 2024
The impressive bull run is set to continue in 2024. The Fed’s December FOMC meeting minutes clearly indicate a sizable percentage of cut in the benchmark interest rate this year. A rate hike is a remote possibility as the majority of FOMC members want to see the full effect of existing interest rate range of 5.25-5.5%. The inflation rate has been dwindling steadily since June 2022.
A lower interest rate regime will boost economic growth speeding up investment by businesses. In 2022, small-cap companies suffered from record-high inflation, a soaring interest rate and fear of an impending recession. However, in 2023, this segment of the economy found some relief from these three concerns. The rate cut will further boost mid and small-sized enterprises.
A lower interest rate regime will be beneficial high-growth sectors like technology and consumer discretionary. Several companies in these spaces depend on cheap source of credit as the full potential of their business is realized over a long period. A low risk-free interest rate will reduce the discount rate thereby increasing the net present value of investment in these stocks.
The global supply-chain system has been restoring slowly since last year as U.S. corporate behemoths are rescheduling their supply-chain system’s bypassing of China. Moreover, the fundamentals of the U.S. economy remain firm despite record high-inflation and interest rate. The latest report of the Atlanta Fed projected that the U.S. GDP would grow 2% in fourth-quarter 2023.
Finally, a preliminary estimate revealed that a massive $1.4 trillion entered U.S. money market funds primarily due to an extremely high interest rate regime, with cash yielding around 5%. A systematic decline in the market interest rate will shift a major part of these gigantic funds to equity markets.
Buy on the Dip
Market participants are surprised to see such an impressive bull run in 2023. Consequently, a large section of investors has already said that U.S. stock markets will remain muted in 2024 as valuation is stretched.
At this stage, investors should wait for a proper time to enter the market. The long-term trend of Wall Street is very much bullish. However, markets are likely to fluctuate in the short-term due to profit booking on stretched valuation or unforeseen external disturbances like geopolitical conflicts or erratic behavior of energy prices.
In this regard, every dip will be a good buying opportunity even for those stocks that have skyrocketed in 2023 and have strong potential for 2024 and beyond. Investors sometimes invest in overbought stocks due to the FOMO (fear of missing out) factor. Instead, they should apply a SIP (systematic investment plan) strategy.
Select bold stocks, especially stocks of those companies that are market leader in their respective sectors. Use every dip in these stock prices to form a formidable portfolio over a period of time. At the end of the year, this portfolio is likely to beat average market returns.
How to Pick the Right Stocks
At this stage, several stocks look attractive for future growth. However, selecting the following four criteria will make the task easy. First, select U.S. corporate bigwigs (market capital > $100 billion) that have a well-established business model and globally acclaimed brand recognition.
Second, look for stocks that have strong growth potential for 2024 and beyond. Third, select stocks have seen positive earnings estimate revisions in the last 60 days. Fourth and most importantly, pick stocks that carry either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The five stocks that fulfill these criteria, despite stretched valuation, are:
General Electric Co. (GE - Free Report) has an expected revenue and earnings growth rate of 8.6% and 69.3%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.2% over the last 60 days.
Microsoft Corp. (MSFT - Free Report) has an expected revenue and earnings growth rate of 14.4% and 13.6%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last seven days.
Amazon.com Inc. (AMZN - Free Report) has an expected revenue and earnings growth rate of 11.7% and 34%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2% over the last 30 days.
Alphabet Inc. (GOOGL - Free Report) has an expected revenue and earnings growth rate of 11.3% and 15.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 30 days.
Netflix Inc. (NFLX - Free Report) has an expected revenue and earnings growth rate of 13.9% and 32.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 30 days.
The chart below shows the price performance of five above-mentioned stocks in the past year.
Image Source: Zacks Investment Research