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Roughly a third of the year has passed, and investors may notice something strange about 2024. In other words, it looks a lot like 2023.
“Rotation trades have become even more complex,” RBC strategists led by Lori Calvasina wrote in a note to clients this week.
“One of the best questions we got was [last] This week, hot inflation figures meant a change in leadership for the U.S. stock market, which appears to be starting to get underway. “Our answer is that we generally think concerns about higher inflation and higher interest rates are good for mega-growth stocks.”
One of the biggest stories for investors heading into 2024 is that last year’s bull market will extend further.
And this is not entirely false.
Energy was the best performing sector in the S&P 500 in March and the second best performing sector in the first quarter.
Additionally, the S&P 500’s nearly 10% gain in the first quarter was outpaced by five of the index’s 11 sectors, with a broader group of leaders than those focused on technology (XLK) and communications services (XLC). It shows the foundation of
However, just like in 2023, concentration on a small number of supercap tech companies played a big role in the market’s rise.
Even as the “great” group of market leaders has shrunk from seven to four and new superstar stocks have emerged, the weight of just 10 stocks in the S&P 500 has reached new highs.
The top 10 stocks in the S&P 500 index now account for an even higher percentage of the index’s market capitalization than they did in 2021 or at their peaks at the beginning of last year’s bull market, RBC Capital Markets data shows. .
Looking ahead, RBC says, “The cross-currents of old leadership will simply become more complex, as will the broader market itself.”
Improving economic growth expectations will continue to drive investment flows away from high-growth tech stocks and toward more value-oriented names. But higher interest rates can be more difficult for companies with less clean balance sheets (i.e., more leverage) than high-tech mega-cap companies.
And if the Fed postpones its rate cut schedule, both the above-mentioned stronger growth potential and higher interest rates will become a reality at the same time.
A perplexing dynamic that reminds us of another situation in which 2024 is imitating 2023: Investors are still chasing the market.
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