What worked last year, and what could work next year, for Wolfgang Klein

The magnificent seven worked. Tesla, Amazon, Microsoft, Nvidia, Apple, Alphabet, and Meta combined are up over 100% in 2023. Through most of the year, their outperformance dragged an otherwise flat S&P 500 higher. Bonds didn’t work, at least until November, with significant volatility in fixed income due to interest rate increases and a ‘higher for longer’ view. Klein notes that shorting bonds was smart, as was a long position in the US dollar. Shorting real estate and banks also worked until about 60 days ago.

While he thinks making yearlong forecasts is “a mug’s game” over the last two months of 2023, a new series of trends have taken shape that Klein believes investors and advisors should be aware of. He expects the 60/40 portfolio to do relatively well in 2024, as will bonds given the broader outlook for interest rate cuts in 2024. For the same reason he thinks both real estate and leveraged businesses should perform a little better. He thinks the US dollar may be worth shorting and that growth stocks should continue to perform next year, though value may participate in a broader bull market as well.

Taking a longer time horizon, Klein tends to favour stocks over bonds, growth over value, and US markets over world markets.

Klein sees some risk in the S&P 500’s current overweight towards the magnificent seven. While he still advocates for holding the names, he thinks an overweight no longer makes sense and holding a wider breadth of names can benefit. He also sees some risk in bets on a US recession. If investors are positioned for a recession they should be aware, Perhaps the greatest risk he sees investors facing now is the temptation of GICs.

Read more: How can advisors help struggling small business owners now? | Wealth Professional

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