Analysts predict that these 3 stock market sectors will end 2024 strong

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The recent sell-off in technology stocks has spooked investors, but the market is still in a bullish phase and analysts say some sectors are poised to outperform in the second half of the year.

Last Tuesday, the tech-heavy Nasdaq posted its worst one-day performance of 2022. Nevertheless, the index gained 1.68% on Monday and is poised for a gain of more than 22% in 2024. Meanwhile, the S&P 500 — which fell 2.86% between last Tuesday and Friday — was up 1.09% on Monday and 17.33% for the year.

Investors who pay close attention to day-to-day market movements may struggle with this type of heightened volatility. However, the episode offers another example of short-term market swings that can be ignored by well-prepared buy-and-hold investors.

What’s notable going forward is that the market has shown continued strength, especially outside of tech, validating a broad bull market that now includes several industries that weren’t part of it before. Here are three stock market sectors that are widely expected to outperform over the next few months.

Energy stocks soar

The highly cyclical energy sector is once again proving attractive to long-term investors. Energy posted the second-biggest gain of all 11 sectors over the past month, up 4.21%, even though the price of West Texas Intermediate — the U.S. crude oil benchmark — hasn’t exceeded $90 a barrel since the summer of 2022.

Energy is a particularly attractive play in the second half of the year for investors because of the industry’s outlook and how cash-rich its top companies currently are. The U.S. has produced more oil than any other country for the past six years, and 2024 is expected to be the seventh consecutive year.

According to the U.S. Energy Information Administration, “United States crude oil production… averaged 12.9 million barrels per day (b/d) in 2023, breaking the previous U.S. and world record of 12.3 million b/d set in 2019. Average monthly U.S. crude oil production reached a monthly record in December 2023, exceeding 13.3 million b/d. The record for crude oil production… is unlikely to be broken by any other country in the near future, as no other country has reached 13.0 million b/d of production capacity.”

In addition, state-owned Saudi Aramco recently scrapped plans to increase production capacity to 13 million barrels per day by 2027, meaning the United States will likely be the largest producer by the end of the decade.

Big Oil also shows its fundamental strength through its share repurchase plans, which are funded by free cash flow and are an example of the company’s financial health. Earlier this year, the Natural Resources Defense Council reported that “Big Oil has spent staggering amounts on share repurchases, funneling profits directly to shareholders and executives… ExxonMobil, Chevron, Shell, TotalEnergies SE and BP Plc spent $113.8 billion on dividends and share repurchases in 2023.”

Oil stocks benefited from the energy sector’s momentum and outlook, with ExxonMobil’s shares up 4.41% over the past month and Kinder Morgan’s shares up 10.15% over the same period.

Return of real estate

Over the past few years, the real estate sector has been hampered by the Federal Reserve’s monetary policy and the resulting interest rate hikes. This has slowed the real estate market and caused real estate investment trust (REIT) stocks to become inactive.

The real estate sector is down -21.42% since the beginning of 2022. However, as the likelihood of the Fed cutting its benchmark interest rate at its September meeting increases, REITs are rising again. Over the past month, the S&P 500 real estate sector has gained 5.28%, the most of all 11 sectors.

Residential REITs, which are heavily dependent on mortgage rates, have been doing particularly well and are expected to post strong results in 2024. For example, Camden Property Trust shares were down about -1% year-to-date through May 29, but are up 14.48% since then, as expectations of lower interest rates grow.

According to CBRE, a real estate services and investment firm, commercial real estate is also likely to start gaining value in the second half of the year. Specifically, “(d)emand for new data center development will drive more institutional investment in 2024 as investors reallocate capital from the office sector to alternative properties.”

Technology remains king

Technology was the only S&P 500 sector in the red over the past month, posting a loss of -4.55%. Those losses were recently offset by large-cap stocks like Nvidia and Amazon, which have posted losses of 8.58% and 7.99%, respectively, since July 10. However, much of the sell-off can be attributed to investors taking profits following a record-breaking rally in Magnificent Seven stocks.

The medium- to long-term outlook for the tech sector remains extremely strong. Demand for AI-enabled microchips, cybersecurity, and cloud computing continues to grow exponentially. As such, analyst price targets for top tech stocks continue to point higher, as currently evidenced by Nvidia’s 4.62% gain on Monday alone.

According to Deloitte’s “2024 Technology Industry Outlook,” “Global IT spending growth projections for 2024 range from 5.7% to 8%… driven largely by double-digit growth in software and IT services spending in 2024. Analysts estimate that public cloud spending will increase by more than 20% and predict greater demand for cybersecurity. Investment in artificial intelligence (not specifically generative AI) is also seen as contributing to the overall increase in spending. Economists predict that AI-related investment could reach $200 billion globally by 2025, led by the United States.”

As a result, despite its recent deprecation, this technology remains one of, if not the this — the strongest sectors for investors for the rest of the year and next year.

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