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Stifel analysts wrote in their Macro and Portfolio Strategy report on the Americas that cyclical value industries and small cap stocks (NYSEARCA:IWM), are set to outperform in the first half of 2024.
Cyclical value industries include banks (XLF), (KBE), energy (XLE), financial services (XLF), insurance (SPSIINS), materials (XLB), real Estate (XLRE), and transportation. Cyclical growth includes industries in media and entertainment (GOOGL), (META), semis (NVDA), tech hardware and equipment (AAPL), and autos (TSLA).
“Disinflation paired with economic concern in 2023 transitions in 1H24 to continued economic growth with sticky inflation,” the report said.
According to the analysts, economic growth should continue in 2024 as the Federal Reserve is holding rates and labor data continues to moderate.
In addition, Stifel analysts believe that forecasting rate cuts is premature since inflation remains “sticky.” Risks may resurge in the second half of next year “if dormant but not defeated inflation rises,” putting cyclical growth groups at risk.
Stifel’s short-term/six-month view on equities long cyclical value and small cap stocks (IWM) as economic growth is expected to rebound with the Fed’s rates on hold and as the U.S. “exits from the 2022 pseudo-recession,” according to the report.
“The Fed is on hold as late-cycle labor slows, reflecting the past slowdown, however sticky inflation prevents rate cuts.”
In addition, Stifel analysts said that the cyclical value rally was triggered by three conditions: better economic growth, stubborn inflation, and Fed on hold.
