Strategies for a Home Run Portfolio in 2024

I’m a baseball fan, and as I survey the year ahead, I’m reminded of a quote from Babe Ruth: “Yesterday’s home runs don’t win today’s games.”

After a winning 2023, the stock market appears poised for a bullish 2024. However, optimism should be tempered with the Babe’s admonition in mind.

Red Sea hostilities, the Russia-Ukraine and Israel-Hamas wars, and U.S.-China tensions show no signs of abating. This overseas strife could disrupt supply chains, thereby reigniting inflation and delaying interest rate cuts.

The interconnectedness of the global economy means that events in one region can reverberate globally, impacting markets and industries seemingly unrelated. The stock market is only a negative headline away from a selloff. Grisly events in Gaza are a “black swan” waiting to happen. Diversification remains a prudent strategy to reduce vulnerability to unforeseen shocks.

Let’s look at some of the likely “sweep spots” of the new year, along with caveats and hedging strategies.

Technology, the perennial stalwart of recent market surges, should continue outperforming in 2024. The digital transformation accelerated by the pandemic has become a permanent fixture, and companies at the forefront of this revolution are magnets for investment cash.

The tech sector was sizzling hot in 2023 but its growth is likely to moderate in 2024. The slide in recent days of bellwether Apple (NSDQ: AAPL) is indicative. The tech sector is overbought and valuations as a whole are extended.

Over the long haul, though, tech stocks are poised to outperform. This rally should extend beyond the usual mega-cap darlings and encompass small caps as well. The small fry tend to thrive amid low interest rates and accelerating economic growth.

However, while the tech sector offers exciting prospects, investors should remain wary of potential bubbles. Discerning between companies with genuine growth potential and those riding the wave of speculative exuberance is crucial. Diligent research, a focus on fundamentals, and a long-term perspective are essential for investors seeking sustainable returns.

That said, a key technical trend continues to shore up the tech sector as well as the overall stock market: the descent of the benchmark 10-year U.S. Treasury yield (TNX).

As you can see from the following chart, the TNX has fallen below its 50- and 200-day moving averages (albeit with a slight uptick to start the new year):

The minutes of the Federal Reserve’s most recent meeting in December (released Wednesday) suggest that the central bank will cut interest rates in 2024, which in turn would fuel an economic and stock market expansion.

The main U.S. stock market indices closed mixed on Thursday as follows:

  • DJIA: +0.03%
  • S&P 500: -0.34%
  • NASDAQ: -0.56%
  • Russell 2000: +0.08%

All eyes are on the next employment report, scheduled for release Friday. The data will indicate the Fed’s degree of elbow room in easing rates. If the jobs market comes in hotter than expected, the Fed won’t be in a rush to cut rates. Hence the skittishness at the start of the new year.

But growth opportunities still abound. Another compelling sector in 2024 is infrastructure. Companies involved in construction and building thrive when the overall economy is expanding.

Governments worldwide, recognizing the need for modernization and sustainability, are prioritizing and subsidizing infrastructure projects. Investors with an eye on this sector can benefit from the confluence of economic recovery and strategic government initiatives.

Renewable energy infrastructure stands out for its significant growth potential. As nations commit to ambitious climate goals, investments in clean energy are poised to generate both financial returns and contribute to a decarbonized future.

It takes raw materials to feed the green transformation and many of these commodities (e.g., copper, cobalt, and lithium) are in short supply. Accordingly, the commodities sector should outperform in 2024 as well.

For the hedges sleeve of your portfolio, precious metals (especially gold) and cryptocurrency are solid candidates. Gold and crypto racked up a profitable 2023 and their momentum should continue in 2024.

As interest rates fall, I also expect quality bonds to deliver both compelling income and capital appreciation in 2024. Other sectors poised to perform well this year include utilities, health care, real estate, consumer staples, and industrials.

Hit Them Out of the Park

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John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.