Whisper it, but the last few weeks of trading before Christmas suggest that 2024 could be a far better year for UK investors than 2023.
Should this come to pass, I’m wondering which stocks might deliver the best returns.
Why might the market soar?
My main reason for being bullish is that it’s looking increasingly likely (although not guaranteed) that the Bank of England will soon cut interest rates in response to falling inflation.
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Now, I don’t think the first cut will be all that much considering the economic landscape is likely to remain fragile for a while. But there’s an argument for saying that it doesn’t need to be. After enduring a thoroughly tricky couple of years, any ‘confirmed’ chink of light will probably do. Never underestimate the impact of a touch of good news if expectations are already on the floor.
If we’re being super-optimistic, there’s always a hope that the Ukraine/Russia conflict might draw to a close next year. If this happens, share prices may receive a further boost. But of the two, I suspect the cut looks more likely.
Which stocks could do well?
A reduction in interest rates should be positive news for stocks in general. But some sectors might experience more of an uplift than others.
I reckon housebuilders could do particularly well. Their share prices have been rising in recent months in anticipation of a revival in market activity. As someone invested in Persimmon, I’ve been lapping this up and hope it will continue.
Consumer discretionary stocks might also benefit as confidence gradually returns. It’s far easier to justify buying something we don’t truly need — holidays, luxury items, cars — if we can borrow money at low(er) rates to pay for it. Could Watches of Switzerland, for example, become a winner in 2024?
Elsewhere, there might be renewed interest in small- and mid-cap tech companies that must borrow cash to expand. Utility stocks could do well too as their dividend streams become more attractive to conservative investors as bond yields fall. Think National Grid.
What could go wrong?
That said, a rate cut may not come as early as hoped. If so, there’s a chance that some of the stocks that have registered great end-of-year gains might struggle to hold on to them.
Again, housebuilders seem likely candidates. Even if a cut does come, I doubt interest rates will ever return to their previous lows. So, affordability will still be an issue going forward.
There’s also an argument that some people and families have found the last few years so tough that they’ve made permanent changes to their (discretionary) spending.
Feet on the ground
Making predictions about what may happen in the markets is fun, especially when one’s feeling as bullish as I am.
But I need to keep my feet on the ground. As writer (and former Fool contributor) Morgan Housel reminds readers in his brilliant new book Same As Ever: “Risk is what you don’t see“. Did you see Covid-19 on the horizon? I know I didn’t.
This is why I’ll continue holding a balanced portfolio rather than betting the farm on a small number of stocks to rocket in 2024. However, I’m certainly not ruling out one or two purchases before 2023 is done.
