Investors will face choppy trading in 2024: Strategist

Tue, Dec 26, 2023, 12:52 PM

The S&P 500 (^GSPC) has been on a run in December, almost reaching its all-time high. The outlook for 2024 has been up for debate as current economic headwinds leave a level of uncertainty. Tom Hainlin, U.S. Bank Wealth Management Senior Investment Strategist, joins Yahoo Finance to discuss why he believes 2024 may be a somewhat difficult year for investors due to the Federal Reserve

Hainlin expects a slowdown in the first half of the year, due to higher rates starting to take their toll and the economy getting into "a sluggish growth rate."

Hainlin does feel there is a bit of hope for investors. He likes dividend-paying stocks during the first half of the year, but says that the tailwinds remain for some of the major thematic trends such as AI, robotics, and cybersecurity.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JULIE HYMAN: Markets, as we mentioned, extending their run higher. Now the S&P 500 is within striking distance of its all-time high. Our next guest, though, sees choppiness ahead. And it's all because of the Fed. Joining us now, Tom Hainlin, US Bank Wealth Management Senior Investment Strategist. Tom, thanks for being here. I want to start with the consumer here and what your expectation is for consumer spending next year, and then how that's going to feed into the macro outlook and the Fed and all the rest.

TOM HAINLIN: Yeah, thanks, Julie, for having us on. Hello, Josh. Yeah, our outlook for 2024 is for a slowdown in the first half of the year. You keyed on some of those retail sales numbers coming through the holiday shopping season. That'll be key. Those were tough comps relative to a year ago. You know, that was a strong holiday season. So 3% still positive growth year over year, which suggests the consumer is still in reasonably good shape.

As you mentioned, the consumer is not one entity. There's a lot of different kinds of consumers. There's homeowners versus renters and all. But the setup then for 2024 is, how do ultimately these higher rates feed into the economy? And does the consumer finally slow down enough that the economy gets into this more of a sluggish growth rate? This is what we're looking for in the first half of next year.

JOSH LIPTON: And so, Tom, so also to get your take just on the Fed next year. Obviously, Jay Powell at that last presser, investors rejoiced, Tom. We saw the big rally, stocks, bonds, then maybe some pushback from our other central bankers. So add it up for us, Tom. You know, when do you see those rate cuts coming next year? And how deep do you think they'll be?

TOM HAINLIN: Yeah, the markets seem to continue to run ahead of the Fed. So prior to that December 13th meeting, the market had more rate cuts in it than the Fed dot plots. The Fed had adjusted their expectations. The market adjusted theirs even farther out. So you've got over six rate cuts priced into interest rate markets right now, whereas the Fed is closer to three.

Three is closer to our target. We see that around June of next year for the first rate cut. But again, we're going into this decelerating economic growth environment for the first half. And the question will be, how rapidly does it decelerate? Is this gentle glide path and the Fed can target maybe around midpoint? Or do we see that more sharp downturn in the first half of the year and the Fed has to get engaged earlier?

JULIE HYMAN: So how do you manage your strategy to account for each possibility? Do you sort of pivot, be ready to pivot? Or do you try to have something that is sort of agnostic in either scenario?

TOM HAINLIN: Yeah, thanks, Julie. Our outlook for the year is in the first half, we find those dividend sector-- dividend-paying sectors attractive in the first half. They tend to do well as the Fed gets ready for its first rate cut, especially in a slowing growth environment. But the longer term, those secular tailwinds behind those thematic opportunities-- AI, robotics, cybersecurity, cloud computing, anytime, anywhere connectivity-- those are the long-term drivers.

We see that as more of a choppy environment for those securities. But if you've got a longer time horizon, that secular growth story is still intact as well. But to answer your question, front half, you know, we prefer more of those dividend payers, those large companies. And then as you get to the second half and beyond, we think there's still opportunities for those growth sectors.

JOSH LIPTON: And, Tom, when you say dividend payers, does that mean you're finding opportunities specifically, let's say, in utilities, Tom? Is that where you're looking?

TOM HAINLIN: Yeah, you look at those laggards from 2023 of utilities, real estate, consumer staples, health care. You find more dividend-paying equities in those categories than you do so in technology, communication services, and consumer discretionary. So those were laggards for 2023 as the Fed was hiking rates throughout the year. As the Fed starts to back off in 2024, we think there's an opportunity for those sectors to recover.

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Investors will face choppy trading in 2024: Strategist

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