2024 could see revival of dividend stocks and a better balance in share market perfomance
Investors sought dividend-paying stocks in 2022 mindful that interest rate hikes by the US Federal Reserve could weigh on bonds (higher yields drives bond prices lower). But in 2023 dividend stocks fell out of favour:
- As interest rates rose to a 22-year high in 2023, investors favoured bonds at attractive yields over riskier stocks offering dividends.
- Artificial intelligence hype also drove investors into mega-cap tech stocks, while the rest of the market lagged behind.
However, dividend stocks may again be in favour in 2024 as investors seek durable, higher yielding dividends to manage the market during the easing cycle. An article published on Morgan Stanley’s website advised that their Global Investment Committed believe that it is “A Time for Balance”, providing the following takeaways:
- The U.S. equity market’s rally at the end of 2023 has left stocks overvalued, with little room for error.
- Analysts’ estimates for 2024 corporate earnings may be too optimistic, given a likely tapering in U.S. economic growth.
- Markets may also be overestimating the number of Fed rate cuts in 2024.
- Financial conditions remained loose in 2023, thanks in part to excess consumer savings, trillions of dollars in fiscal payments and the fact that households and businesses had already locked in lower loan rates. This is set to reverse in 2024.
See: U.S. Stock Market Outlook 2024 | Morgan Stanley
Given these risks the article suggests that investors should consider adding exposure to equities other than the mega-cap tech stocks. Their Global Investment Committee also maintain a preference for value stock in favour of growth stocks, particularly financials, industrials, utilities, consumer staples and healthcare.
The New Zealand sharemarket underperformed key global sharemarkets in 2023, including the US, Japan, Australia and UK, despite a strong rally over the closing months of the year. The themes outlined above, and the return of dividend stocks, may also see a better balance geographically and a better relative performance for the New Zealand sharemarket in 2024.
Sources: CNN (Before the Bell, Jan 12 2024); Morgan Stanley (2024 U.S. Stock Market Outlook: A Time for Balance, Jan 10 2024).