Growth sectors soared on spiking AI interest in the May-through-July period, stumbled in the August-through-October period, and roared again in November-December. No sector was spared in the August-October selling, and the recovery in November-December was equally broad. Because many sectors did not have the performance “cushion” that growth sectors carried into the market correction, all but three sectors were down year-to-date as of the end of October. That improved meaningfully to seven positive sectors as of the end of November. And for the full year, nine of 11 sectors landed in the win column. In broad terms, the year 2023 for stocks was positive, but it was also narrow. Three sectors — Communication Services, Technology, and Consumer Discretionary — accounted for most of 2023 market advance. None of the other eight sectors beat the overall market for 2023. The Street is divided as to whether the AI-driven “Magnificent Seven” can remain magnificent in 2024. Bears point out that valuations such as absolute and relative P/Es for these stocks are stretched. Bulls respond that margins and growth rates for these stocks are also two-times or more the market average. Given that the age of generative AI has only just started, Argus believes these names and other perceived AI winners could lead the market over the next several years. In 2022, investors became accustomed to buying cyclical, defensive, interest-rate-sensitive, and inflation-beneficiary stocks. Although Argus had expected to see a more broad-based advance from a sector perspective in 2023, we have not given up hope for additional sector breadth in 2024.
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