What are the best investment trends for 2024? Explained by Digimagg

Investors commenced 2023 with a cautious outlook following the challenges of 2022, but are concluding on a celebratory note with a traditional year-end "Santa rally" lifting stock markets.

The US stock market is poised to wrap up the year with a 25% surge, fueled by another frenzy surrounding tech stocks, particularly driven by the artificial intelligence (AI) revolution exemplified by the remarkable 250% surge of chip maker Nvidia.

The "Magnificent Seven" mega-cap US tech giants, including Apple, Microsoft, Google-owner Alphabet, Amazon, Nvidia, Facebook-owner Meta, and Tesla, once again dominated the investment landscape. However, other assets also thrived, with cash yielding above 5%, bond yields surpassing 5%, and gold hitting record highs in December.

Despite the upbeat sentiment, some caution that the rally may have extended too far, potentially leaving investors overly optimistic as they enter the new year.

Equity 

Despite the positive conclusion to the year, Yves Bonzon, group chief investment officer at Julius Baer, notes that investors were predominantly pessimistic for much of 2023. He attributes the significant November rally to a shift in sentiment as many investors were compelled to revise their outlooks. This trend persisted into December and was further bolstered by the US Federal Reserve's indication of potential interest rate cuts in 2024.

While the US economy is projected to expand by 2.1% in 2023, forecasts indicate a slowdown to just 1.4% in 2024. Emma Wall, head of investment analysis and research at Hargreaves Lansdown, cautions that 2024 is unlikely to witness rapid or sustained growth.

Entities that accumulated debt during the era of low interest rates may struggle to meet the higher borrowing costs prevalent today. Wall suggests that any economic turbulence will disproportionately impact tech and growth stocks, prompting a shift towards lower-risk assets.

Considering the current high valuations of US stocks, they appear less appealing, while macroeconomic challenges in Europe deter new investments in the region this year. However, Wall expresses optimism regarding Asia and emerging markets, where stocks are trading at a notable discount compared to developed markets. Despite negative headlines, she views China as a promising region worthy of consideration.

Despite lower interest rates in Japan, Emma Wall expresses caution due to the potential drag on performance for investors in other currencies caused by the weak yen.

Michael Strobaek, chief investment officer at Lombard Odier, advocates for maintaining US stocks as a core portfolio holding despite their higher valuations and the risks posed by geopolitics, energy dynamics, strategic competition with China, and the forthcoming US presidential election.

Ole Hansen, head of commodity strategy at Saxo Bank, notes that the themes of green transformation, renewable energy, and energy storage underperformed in the past year but anticipates a potential resurgence in 2024. He suggests that with declining funding costs and ongoing efforts to address climate change, these sectors, which are currently under-owned, could experience a revival.

Cash 

In 2023, savers experienced a favorable environment as interest rates continued to rise, providing a welcome respite after enduring years of near-zero returns.

Jacob Manoukian, US head of Investment Strategy at JP Morgan Private Bank, acknowledges the appeal of holding cash in such volatile markets, particularly when interest rates are high. He emphasizes that cash tends to outperform stocks and bonds during periods of rapid interest rate hikes and uncertainty surrounding corporate earnings growth.

However, Mr. Manoukian warns that as interest rates decline, savings rates will inevitably follow suit, indicating that the current favorable conditions for cash may not persist.

Christian Gattiker, head of research at Julius Baer, views cash as an attractive interim option for investors transitioning between asset classes. Nevertheless, he advises caution, suggesting that cash should only be used as a tactical buffer, as short-term rates may decrease within the next 12 months.

US Dollar

The dominant US dollar has experienced a decline of 2.73% against the euro, 4.73% against sterling, and 7.42% against the Swiss franc over the course of the year.

The majority of this decline occurred in the final weeks of the year, driven by hopes of Federal Reserve rate cuts, which impacted safe-haven flows and US government bond yields, discouraging buyers.

However, Mr. Strobaek anticipates a potential recovery for the greenback. He suggests that a scenario of a soft landing for the US economy amid sluggish growth elsewhere could enable the US dollar to maintain its yield and growth advantages compared to its counterparts.

Gold

The gold price surged to an unprecedented peak of $2,198.54 an ounce on December 3, driven by hopes of interest rate cuts, before subsequently dropping below $2,000.

Given its lack of interest yield, gold becomes more appealing with lower rates, particularly as yields on other safe haven assets such as cash and bonds diminish.

Despite the recent decline, gold is poised for its strongest performance since 2020, according to Mr. Hansen.

Maintaining a positive outlook, he believes that rates have reached their peak and anticipates a downward trend in Fed funds and real yields.

As the Fed cuts rates and the US dollar weakens, making gold relatively cheaper in other currencies, buyers in key markets like China and India are likely to be attracted.

Furthermore, Mr. Hansen predicts that central banks will continue to bolster their gold reserves, a factor that contributed to a 10% increase in gold prices this year according to the World Gold Council. This trend is expected to persist into 2024.

In summary, Mr. Hansen foresees a volatile journey towards a new record high for gold prices.

Bonds

Following a tumultuous 2022 marked by a crash in both bond and stock prices, 2023 witnessed improvement, and prospects for 2024 appear even more promising.

Bonds offer a fixed rate of interest, making them less appealing as rates rise and more attractive when rates decline. Presently, with high yields and low prices, bonds haven't been this attractive since before the global financial crisis, according to Mr. Manoukian.

He highlights that bonds provide stability and income, and with the recent uptick in yields, they are now poised to excel on both fronts.

Black swan risks

As always, the biggest surprise of the upcoming year will likely be the one that catches investors off guard.

Mr. Gattiker outlines several potential sources of disruption, including US politics, mistakes in monetary policy, resurfacing systemic issues, a credit squeeze, a slowdown in China's growth, geopolitical tensions, power outages, trade conflicts, and excessive leverage.

The events of 2023 have demonstrated that it's not pessimism that poses the greatest risk, but rather unwarranted optimism. Therefore, it's prudent not to set expectations too high.

Bitcoin

Bitcoin began 2023 at $16,000 and is poised to end the year at around $45,000, nearly tripling in value.

The leading cryptocurrency has regained its hype, sparking discussions of its price potentially reaching $100,000 in 2024. However, as always, outcomes remain uncertain.

Investors anticipate a boost from the approval of spot-Bitcoin exchange-traded funds (ETFs) by US regulators, along with the upcoming "halving" in April, which will further limit supply. Alyse Killeen, managing partner of Stillmark Capital, notes that buy-and-hold investors currently hold 70% of the total Bitcoin supply, which should help support its price by reducing available supply.

Additionally, institutional adoption may drive prices higher, attracting new buyers beyond those traditionally interested in financial markets.