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2023 was a good year for the stock market, as the broad market S&P 500 Index, and ETFs tracking it such as the SPDR S&P 500 ETF (NYSE:SPY), the iShares Core S&P 500 ETF (NYSE:IVV) and the Vanguard S&P 500 ETF (NYSE:VOO) ending the year with 25% gains.
Last year’s stock market returns were primarily driven by the Technology sector which gained over 55% on aggregate, and the Communication Services sector which rose about 50% on average. Investors are now wondering which sectors will shine in 2024.
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According to Fidelity’s sector managers, the sectors that will lead and those that will lag may depend in large part on macroeconomic considerations. If the U.S. avoids a recession and achieves a ‘soft landing,’ the most compelling potential opportunities for this year lie in the following cyclical sectors:
The materials sector usually aligns with the economic cycle, riding the waves of overall economic growth. Although the sector showed positive yet slow returns last year due to worries about a possible recession, historically, it has excelled during early phases of economic upswings, making it primed for potential recovery.
Fidelity sees long-term investment potential in a number of segments of the sector that have shown favorable supply-and-demand dynamics, including among copper miners and U.S. chemical manufacturers.
The Materials sector is broadly tracked by the Materials Select Sector SPDR ETF (NYSE:XLB) and the Vanguard Materials ETF (NYSE:VAW).
The industrial sector saw positive, but lagging returns compared to the S&P 500 in 2023 due to investor focus on specific mega-cap growth stocks. Fidelity sees long-term growth in various industrial segments being fueled by investments in onshoring, infrastructure, and sustainability.
An improved U.S. economy could provide a short-term boost. Opportunities for 2024 include commercial aerospace, utilities infrastructure, residential construction, and shipping companies within this sector.
Broadly, the Industrials sector is tracked by the SPDR Select Sector Fund – Industrial (NYSE:XLI) and the Vanguard Industrials ETF (NYSE:VIS).
The resilience of U.S. consumers throughout 2023 notably contributed to the consumer discretionary sector’s improved performance.
Looking ahead to 2024, Fidelity believes this sector’s trajectory might still hinge on broader factors like the economy’s health and interest rate trends. Retailers with appealing valuations and defensive business strategies, potentially shielding them from economic downturns, are the ones that could stand out.
The Consumer Discretionary sector is tracked by the SPDR Select Sector Fund – Consumer Discretionary (NYSE:XLY) and the Vanguard Consumer Discretion ETF (NYSE:VCR).
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