Taking Stock: Q4 2024 equity market outlook

No surprise, cyclicals become more interesting as the cycle evolves and the economy approaches recovery mode. In general, recessions more often follow the start of rate cuts, with economic conditions improving as the easing cycle advances.

This time … similarities and differences

Our review of data back to 1979 shows that healthcare is also a relative outperformer over the long term. While every cycle is different, we maintain our conviction in the healthcare sector given strong secular tailwinds, such as aging populations and rising health needs, alongside growth potential powered by innovation.

Our analysis of stock dispersion within sectors over the past 20 years shows that healthcare was among three sectors (discretionary and tech being the others) that exhibited above-average difference between the best- and worst-performing stocks. This suggests potential for attractive stock picking in a sector that typically performs well in the environment we are entering.

The outlook for staples in this cycle is more nuanced. We find the sector to be well priced after being left behind in the 2023-2024 market upturn and attractive on a one-year horizon. Yet its future may not be as robust as in past cutting regimes. 

On balance, the growth rate of staples has been in decline since the 1980s when dual-income families were coming into vogue and embracing the convenience of packaged foods. With that story mostly penetrated, the catalysts for significant staples growth are not what they once were. Another variable at play: the potential impact that GLP-1 diabetes and weight loss drugs may have on the demand for some packaged food items. 

Meanwhile, the technology sector, a laggard in past rate-cutting regimes, looks far better positioned in this cycle. We find many areas of tech have become more staples-like, while AI also serves as a powerful secular propellent for growth in the sector.

Final reflection: The power of patience

Since 1974, the stock market has endured a presidential resignation, the collapse of the “Nifty Fifty” blue-chip stocks, raging stagflation, the 1987 stock market crash, the rise and bursting of the dot-com bubble, three wars in the Middle East, the GFC and COVID-19 pandemic. And over those 50 years, $5,000 invested in the S&P 500 Index would have grown to be worth $1.3 million today.*

Volatility is inevitable. Still, for long-term investors, patience is a virtue.