Heading into 2024, Wall Street strategists advise investors to get defensive in their stock and sector selection while taking advantage of this year’s laggards. CNBC Pro spoke to some of those strategists to answer the question: If you had $50,000 to invest, where would you put it? Looking ahead to the new year, here’s where they said they would allocate their money, and how much they would devote to various asset classes. Play the ‘catch-up’ opportunities According to Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, the bank recommends a defensive posture, allocating 45% of a portfolio to bonds and 46% to equities, with about two-thirds of the stock portion going to large-cap names. The balance is earmarked 2% to cash and 7% to commodities. The other theme to pursue is areas of the stock market that have been left behind during the recent rally. Think quality stocks and defensive companies. That can include the industrials, materials and health-care sectors, with energy getting an “honorable mention” from Wells Fargo. “Those have been some of the areas that have been left behind in the recent rally as investors have gravitated toward some of the other areas, especially growth-oriented” tech stocks, Samana said. Industrials are up 15% this year, while materials have added 10% and health care is little changed. Energy has also underperformed, falling about 3% in 2023, and could be a “catch-up opportunity,” according to Samana. Technology, meanwhile, has soared 55% during the same period and the S & P 500 as a whole is ahead more than 23%. Within health care, Wells Fargo recommends makers of life science tools and services, equipment and supply companies and managed health care. In industrials, aerospace and defense and rail transportation get a favorable nod, while construction, industrial gases and specialty chemicals look attractive in materials. Samana added that commodities could also do well next year if demand outstrips supply, but that their performance will moderate if global economic growth slows. Long- and short-term fixed income rather than shorter-dated securities is another area Wells Fargo favors. What to avoid? Small caps, he said, advising investors to sell their holdings considering recent outsize gains. The S & P SmallCap 600 index is almost 13% higher in the fourth quarter and the Russell 2000 has added almost 12%, both beating the S & P 500’s 10.5% advance. Wells Fargo’s caution derives from its expectation of a punk economy in 2024. Investors’ strategy should aim to participate in areas trading at cheaper valuations and that already discount a pending economic slowdown, Samana said. “Opportunities maybe aren’t as great as they were just a few weeks ago,” when yields on Treasurys were closer to 5% and the S & P 500 was under 4,200, Samana said. “But that being said, we still like large-cap U.S. equities. We think they’ll allow investors to participate in any of the upside, while being a little bit more resilient in case there is an economic slowdown, as we anticipate.” The 60/40 portfolio remains a winner With $50,000, BMO Wealth Management’s Chief Investment Officer Yung-Yu Ma similarly advised investors to diversify their portfolios with some targeted sector plays. “We’re recommending an overall balanced approach, which we think is pretty close to a 60/40 portfolio for a typical investor in terms of healthy allocation of stocks and also a healthy allocation to safe fixed income,” Ma said. That traditional allocation devotes 60% to stocks and 40% to bonds in a model portfolio. “I would just be cautious about high valuation areas of the market,” Ma noted. High-valuation, cyclical areas of the market today can include consumer discretionary stocks, while consumer staples are traditionally a low-growth area, Ma said. Consumer discretionary stocks have jumped more than 42% this year, while the consumer staples sector is down more than 3%. Staying no more than equal weight on mega-cap technology names is likely the best choice for investors’ portfolios at the moment, Ma added, noting that they are already pricing in a lot of growth. Tech as a whole constitutes 29% of the S & P 500 , according to S & P Dow Jones Indices. “If we were to raise concern, just in the recent weeks here, there’s been so much enthusiasm about the Fed shifting to a much more accommodative position next year that some of the gains of 2024 have already been [pulled] forward here to December, or the end of 2023,” Ma said. In a balanced portfolio, Ma maintained that investors could dip their toes into beaten-up parts of the biotech and industrial stocks as well as pockets of international equities. Ma sees biotech as poised for a bounce back next year and expects increased merger and acquisition activity. Industrial stocks that focus on U.S. infrastructure are another opportunity in 2024, he said. BMO’s bullishness on specific corners of industrial stocks rests on domestic spending stemming from the federal Infrastructure Investment and Jobs Act of 2021, and the Chips and Science Act and Inflation Reduction Act of 2022, the latter of which allocated billions to renewable energy and the transition away from fossil fuels to fight climate change. Investment has also been spurred by reshoring efforts by foreign and domestic corporates looking to strengthen their supply chain resilience in the U.S., Ma said. Outside of domestic equities, Ma recommended an allocation toward emerging markets, specifically to Japanese equities given the country’s improved corporate governance and efforts to return capital to shareholders through more share buyback programs.
