Despite intense uncertainty, 2023 was another bumper year for the stock market. The S&P 500, tracking the US’s biggest companies, returned a healthy 24%, in the face of volatile geopolitics, an ongoing battle against inflation, and more. What comes next is of course a mystery, but I’ve set out three predictions for 2024, which will guide how I approach my investments.
AI excitement to continue
The continued advancement of AI technologies is reshaping industries across the globe, and the stock market is no exception. Despite enormous rallies last year, AI stocks are expected to witness significant growth in 2024. As businesses increasingly adopt AI-driven solutions to enhance efficiency and decision-making processes, companies with enormous access to data, such as Microsoft and Alphabet, are well positioned.
I’ll also be keeping an eye on established hardware leaders like Nvidia. The integration of AI into various industries, from healthcare to finance, is likely to create additional investment opportunities.
As always with growth companies, it becomes incredibly important to understand the fair value of these companies. I consider understanding the price-to-earnings (P/E) ratio, and calculating the discounted cash flow as essential. These metrics can help investors understand if they’re getting a bargain, or if shares are already fairly priced.
Small-cap companies to shine
Smaller companies, with market capitalisations ranging from $300m to $2bn, can offer higher growth potential compared to their larger counterparts. These companies are often incredibly agile, and have the potential to outperform, as they disrupt niche markets.
A report by CNBC suggests that 2024 may see a resurgence of interest in small-cap stocks. Many investors will be on the hunt for undervalued companies as economic conditions stabilise. However, it’s essential for investors to conduct thorough due diligence, as small-cap stocks can be more volatile.
I plan to make small-cap companies a much more prominent part of my portfolio in 2024.
Energy companies to win and lose
In the evolving energy landscape, the performance of many companies will be tied to their adaptability to changing market dynamics. Both renewable and non-renewable energy companies are likely to experience many challenges, as a complex commodity market and political scene makes the future increasingly uncertain.
Companies backed by government incentives, with a strong balance sheet, are likely to be successful, However, many businesses are likely to suffer as interest rates remain elevated. I expect many of these loss-making companies to be acquired by the traditional non-renewable giants to diversify income streams, and appear more environmentally friendly.
Overall
I predict 2024 will likely be another great year for the market. Despite continued uncertainty, the general health of the global economy appears to be improving following the impact of the pandemic. Over the long term, the stock market continues to be a great place to be putting money to work, and I’ll be doing exactly that.
