In a relentless bull run, the US stock market has surged to impressive heights in recent weeks.
The S&P 500, after notching eight consecutive weeks of gains, soared to 4,774, edging tantalizingly close to its all-time high recorded in January 2022. Simultaneously, the Nasdaq Composite, Russell 2000, and Dow Jones reached their highest levels in 52 weeks.
This impressive market performance can be attributed to a mix of factors, including the flourishing artificial intelligence (AI) sector, subdued inflation, and the Federal Reserve’s recent confirmation of rate cuts in 2024.
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As investors navigate this wave of optimism, many are considering exchange-traded funds (ETFs) for their capital allocation in the upcoming year. In that light, we have noted down five important ETF predictions that may be of help.
Consumer ETFs may gain traction amid fading recession risks
Despite recent positive economic and market developments, some analysts and economists still believe a recession is coming in 2024.
However, those fears may have been overplayed. Recent data showed that the US gross domestic product (GDP) rose at a revised 4.9% pace in Q3 2023, the highest since Q4 2021.
For 2024, economic growth is estimated at 1.4%, followed by slight acceleration in 2025 and 2026. With that in mind, the consumer sector may attract more investor attention in 2024. In that case, consumer ETFs could become more popular.
Active ETFs attracting more attention
The landscape of strategic-beta ETFs has been experiencing a shift, with a diminishing incentive for ETF issuers to introduce novel funds in this now-mature market.
The prevailing downward pressure on fees is compelling smaller providers to exit, while emerging opportunities lie in higher-priced active or alternative ETFs. This trajectory is anticipated to persist in 2024, resulting in a further decline in strategic-beta ETF launches and a potential uptick in closures.
Alpha-seeking investors are increasingly opting for active and alternative ETFs, and as such, new capital flows are expected to follow suit.
Rate cuts may favor healthcare and tech ETFs
After struggling to navigate a hawkish Federal Reserve in the past two years, investors are now bracing for a dovish pivot.
In this regard, some analysts think that the change in monetary policy could bode well for specific sectors and investment styles. Citi strategist Scott Chronert recently said that sectors like technology, healthcare, and consumer have historically outperformed other categories in the wake of rate cuts.
“Health Care, Consumer, and Tech sectors have been notable outperformers following Fed rate cuts. Yet, directional sector action and dispersion tends to be more narrow post cut than it was leading into it.”
– Chronert said in a note.
With that in mind, it may be wise to keep tabs on ETFs focused on these three sectors in the coming year.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
