2024 is shaping up to be a lucrative year for stock market investors. Already, many stocks are up 20% or more for the year.
Here, I’m going to explain why I’m expecting stock market returns to be attractive in 2024. I’ll also highlight a stock I like the look of now.
Why I’m bullish
For those who own well-diversified, global investment portfolios (like myself), there are a lot of reasons to be bullish right now.
For starters, the technology industry continues to go from strength to strength. This was illustrated in recent quarterly earnings. Microsoft, for example, generated year-on-year revenue growth of 18% for the quarter with cloud computing growth of 30%. Not bad for a company worth around $3trn.
Secondly, there’s scope for the global stock market rally to broaden out. Last year, it was all about the ‘Magnificent 7’ tech stocks. This year, we could see momentum come to other areas of the market. One sector I’m excited about is Healthcare. I’m invested in a global healthcare fund and year to date, it’s already up around 5%.
Third, lower interest rates in the second half of 2024 could give a much-needed boost to small-cap stocks. Many of these stocks have been hit hard as rates have risen, and have the potential for explosive rebounds. On the London Stock Exchange, I’m seeing lots of opportunities in this space.
Positive signs early in 2024
It’s worth noting that in the US, there’s a market hypothesis (known as the ‘January Barometer’) that states that the performance of the S&P 500 index in January can predict whether returns will be positive or negative for the year.
If the S&P 500 posts a gain in January (which it did this year), the January Barometer suggests that US stock returns will be positive for the year. By contrast, if the S&P 500 falls in January, the indicator suggests that stocks will perform poorly for the year.
This indicator sounds simplistic, I know. But it’s surprisingly accurate. Believe it or not, it has only posted 12 major errors since 1950, with an 84% accuracy rate, according to the Stock Trader’s Almanac.
This suggests that there’s a very good chance returns from the US market will be positive for the year.
A stock I like today
Now, it’s not too late to get in on the stock market action. Looking at the market today, there are a lot of cheap shares.
One stock I’m bullish on right now is Smith & Nephew (LSE: SN.). It’s a UK healthcare company that specialises in joint replacement technology.
Smith & Nephew’s market was disrupted during the pandemic.
But recent results from medical technology companies such as Johnson & Johnson and Stryker show that the market is now in full recovery mode.
So, things are looking good for Smith & Nephew.
Right now, this stock trades on a price-to-earnings (P/E) ratio of just 13. That’s quite low given that the company is expected to generate earnings growth of about 12% this year. The dividend yield is around 3%.
There’s no guarantee that this stock will outperform, of course. As always, there are things that could go wrong.
All things considered, however, I think the setup is attractive.
If I didn’t already have a large position here, I’d be buying this stock today.
