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2024's most anticipated sectors outside of the Magnificent 7

Morgan Stanley (MS) outlines the top investment areas for 2024 outside of the dominant Magnificent Seven tech stocks. Yahoo Finance's Ines Ferré details the top sectors expected for 2024 based off trends seen this past year, including real estate, materials, and semiconductors.

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

This post was written by Luke Carberry Mogan.

Video transcript

JOSH LIPTON: Moving on.

While 2023 has been the year of outperformance by the Magnificent Seven, there are other market opportunities investors should keep an eye out for.

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Here with the details is Yahoo Finance's Ines Ferre.

Ines.

INES FERRE: Yeah, Josh.

And if you weren't in the Magnificent Seven this year, you may have had sort of a muted performance in your portfolio.

But I spoke to one portfolio manager who told me that he believes next year will be a year where you could see some broadening.

So you could really pick some stocks within certain sectors.

And he basically was pointing to two trends next year.

One is that the market has expected that the Fed is done with the interest rate hikes.

And in fact, you could even see interest rates cuts, according to some market analysts out there.

So you are seeing a leveling out of those interest rates.

And then for another trend that he sees is a destocking is over.

So you had during 2021, 2022, companies hoarding inventory.

And then they've had to destock this year.

So he believes that trend is now over going into 2024.

And so then you will have more of a normalization, so to speak, in some of these companies.

So one of the areas that he believes is good is real estate.

And this is why.

He says that real estate took the brunt of the interest rate hikes this year.

And he believes that rental-- this is Aaron Dunn, who's co-head of value equity team at Eaton Vance, part of Morgan Stanley Investment Management.

He has told me that mortgage rates have really impacted the real estate market this year, but rental homes will be in demand going into 2024 as building costs go up and the cost to finance some of these buildings go up.

So he's basically saying that you're going to see a demand for rental companies.

And so invitation homes, INBH, that's one of the stocks that he's looking at, which is up 12% year-to-date.

Also Mid-america communities is another stock, mAA and then basic materials is another sector that he's also taking a look at for opportunities.

When we talk about basic materials, these are companies that produce chemicals, everything from tin to timber.

This is the stuff that goes into the products.

And so he was saying that, look, you are-- the basic material companies are at the heart of the destocking trends.

And so they have been destocking this year.

And going into 2024, you are going to see some opportunities there.

He was recommending FMH-- FMC, which is a company, a developer of insecticides for agriculture use.

And so basic materials is where you may be seeing some stock picks.

Also, health care.

XLV is down 4% this year.

But he's saying, look, funding took a hit this year because of the high interest rate environment.

And going into 2024, some of the companies that do more of the picks and shovels stocks, those are the ones that build out equipment for capacity for companies, for pharmaceutical companies.

Thermo Fisher, which is down 10%, they provide everything from medical equipment to software and analytical tools, that's one company to take a look at within that sector.

And then the semiconductor, that has also been at the heart of the destocking trend that we have seen this year.

So looking at semiconductors going into next year, especially the second half of next year if we get a little bit of a sluggishness at the first half of the year.

Texas Instruments is one of the companies that this portfolio manager is looking at.

Texas Instruments is down 6% year-to-date.

Guys.

JOSH LIPTON: Ines Ferre, thank you.