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Daily Spotlight: Argus’s Favored Classes, Segments

In Business
January 09, 2024

Summary

December was another good month for investors, as stocks rose 4% and bonds increased 3%. In 2023, stocks maintained the performance lead over bonds, with a 24% gain in the benchmark S&P 500 compared to a 2.5% increase for the fixed-income benchmark ETF AGG. Looking ahead, our Stock-Bond Barometer model now modestly favors stocks over bonds for long-term portfolios. In other words, these asset classes should be near their target weights in diversified portfolios, with a slight tilt toward stocks, given the recent decline in yields. We are over-weight on large-caps. We favor large-caps for growth exposure and financial strength, while small-caps offer value. Our recommended exposure to small- and mid-caps is 12%-13% of equity allocation, below the benchmark weighting of 20%. U.S. stocks have outperformed global stocks over the trailing one- and five-year periods. We expect this long-term trend favoring U.S. stocks to continue, given volatile and erratic global economic, political, geopolitical, and currency conditions. That said, international stocks offer favorable near-term valuations, and we target 5%-10% of equity exposure to the group. In terms of growth and value, growth rebounded in 2023 and outperformed value as interest rates stabilized. Over the longer term, we anticipate that growth, led by the Tech, Consumer, and Healthcare sectors, will top returns from value, led by Energy, Real Estate, and Materials, due to favorable secular, demographic, and regulatory trends.

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