The year 2023 was a great one for the stock market. The Dow Jones Industrial Average rose 14% to finish the year at a record high. The benchmark S&P 500 index gained 25% and came within a whisker of a record close. And the technology-focused Nasdaq index increased 43% to register its best year since the internet rally of 1999. So, what can we expect in 2024? How will the markets perform in the year ahead? It’s still very early days, but already we are seeing some trends and shifts take hold in the market. The winners and losers of the past year could change in the coming months as investor preferences shift and sentiment takes a different turn. Interest rate cuts, wars in foreign lands, and a potential global recession could each influence markets over the next 12 months. As the New Year begins, we offer 2023 in review: key stock trends and sector shifts unveiled.
Bank Stocks Are Hot Again
As soon as Fed Chair Jerome Powell announced that three interest rate cuts are likely in 2024, the sun began to shine on bank stocks. Despite their earnings holding up well, bank stocks, as a group, had a miserable 2023. The S&P Banks Index has registered a measly 2% return over the last 12 months, compared to a 25% gain in the benchmark S&P 500 index. And that small gain in the banking index was achieved after Powell announced the potential rate cuts in December.
Of course, things really got ugly for all bank stocks after the failures of several regional lenders last spring, including Silicon Valley Bank (OTCMKTS:SIVBQ) and Signature Bank (OTCMKTS:SBNY). However, investors and traders are now putting capital back into bank stocks, with interest rates having now peaked and likely to decline in the coming months. Since the start of the fourth quarter of 2023 last October, the S&P Banks Index has climbed 30% higher and turned positive, with most of that increase occurring in the last month.
Influential bank stocks such as JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) are each up 10% since the start of December.
BioTech Is Having A Moment
Another beneficiary of the expected rate cuts this year appears to be biotech stocks. The equal-weighted SPDR S&P Biotech ETF (NYSEARCA:XBI) has risen 38% since the broader market began to rally at the end of October. The gain is a major reversal for the biotech sector. Before Halloween, the biotech ETF was down 20% on the year. But now, biotech stocks are rallying again as the prospect of lower interest rates comes into view.
This makes sense as most biotech stocks, the majority of which are small start-ups, rely on borrowed capital to fund their operations and drug research. In addition to the overall rally among biotech stocks, there has also been a fresh wave of mergers and acquisitions among biotech companies over the last two months. And there are reports that biotech executives are buying up company shares as the stocks rally, providing a further boost of confidence for the sector.
On the first trading day of 2024, as the technology-laden Nasdaq index suffered its worst performance since last October, shares of biopharmaceutical company Moderna (NASDAQ:MRNA) rose 13% on news of an analyst upgrade. MRNA stock has now risen 37% since the beginning of December.
Microchip and Semiconductor Stocks Are Pulling Back
Fueled by the hype surrounding artificial intelligence (AI), stocks of microchip and semiconductor companies led the market higher in 2023. Shares of Nvidia (NASDAQ:NVDA) increased 238% last year, while the stock of Advanced Micro Devices (NASDAQ:AMD) rose 125%. Now, though, it appears that stocks of chip and semiconductor companies are pulling back. AMD stock has dropped 9% since the last trading day of 2023, while NVDA stock has fallen 5% and appears unable to break above resistance at $500 a share.
Other chip and semi stocks are also sliding lower to start 2024. This could be the result of short-term profit-taking or the start of a bigger rotation out of tech and a move away from the AI trade that dominated markets last year. It will take some time to play out, but this type of sector rotation is common in the market. In 2022, stocks of oil and gas companies dominated only to become among the worst performers last year as investors dumped big oil in favor of big tech.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
