Analysts Predict These 3 Stock Market Sectors Will Finish 2024 Strong

The recent selloff in tech stocks gave investors a fright, but the market is still in the midst of a bull run and analysts say certain sectors are poised to outperform in the second half of the year.

Last Tuesday, the tech-heavy Nasdaq posted its worst single-day performance since 2022. Nonetheless, on Monday the index gained 1.68% and remains up over 22% in 2024. Meanwhile, the S&P 500 — which dropped 2.86% between last Tuesday and Friday — is up 1.09% Monday and 17.33% on the year.

Investors who pay close attention to the market's daily movements may have whiplash from this kind of heightened volatility. But the episode offers yet another example of short-term market fluctuations that can be disregarded by well-prepared buy-and-hold investors.

What's noteworthy going forward is that the market has demonstrated ongoing strength particularly outside of tech, providing validity to a broad-based bull market that now includes a handful of industries that previously weren't participating. Here are three sectors of the stock market that are widely expected to outperform over the next few months.

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Energy stocks are soaring

The heavily cyclical energy sector is again proving appealing for investors with long-term horizons. Over the past month, energy has seen the second-largest gain out of all 11 sectors by a posting 4.21% increase despite the price of West Texas Intermediate — the U.S. benchmark for crude oil — not having surpassed $90 per barrel since the summer of 2022.

Energy is particularly attractive as a second-half play for investors due to the industry's outlook and how cash-rich its top companies currently are. For the past six years, the U.S. has produced more crude oil than any other nation, and the expectation is that 2024 will become the seventh consecutive year.

According to the U.S. Energy Information Administration, "Crude oil production in the United States ... averaged 12.9 million barrels per day (b/d) in 2023, breaking the previous U.S. and global record of 12.3 million b/d, set in 2019. Average monthly U.S. crude oil production established a monthly record high in December 2023 at more than 13.3 million b/d. The crude oil production record ... is unlikely to be broken in any other country in the near term because no other country has reached production capacity of 13.0 million b/d."

Additionally, Saudi Arabia’s state-owned Saudi Aramco recently scrapped plans to increase production capacity to 13 million barrels per day by 2027, leaving the U.S. as the likely top producer through the end of the decade.

Big Oil is also displaying its fundamental strength through share repurchase plans, which are funded through free cash flow and serve as an example of a company's financial wellbeing. Earlier this year, the Natural Resources Defense Council reported that "Big Oil spent staggering sums on stock buybacks, funneling profits straight to shareholders and executives ... ExxonMobil, Chevron, Shell, TotalEnergies SE, and BP Plc spent $113.8 billion on dividends and stock buybacks in 2023."

Oil stocks benefitting from energy sector momentum and forecasts include ExxonMobil, which is up 4.41% over the past month, and Kinder Morgan, which has gained 10.15% over the same time.

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The return of real estate

Over the past few years, the real estate sector has been hampered by the Federal Reserve's monetary policy and the resultant interest rate hikes. This has slowed down the housing market and seen the stocks of real estate investment trusts (REITs) go idle.

Since the start of 2022, the real estate sector is down -21.42%. But with the increased likelihood of the Fed cutting its benchmark interest rate at its September meeting, REITs are back on the upswing. Over the past month, the S&P 500's real estate sector has gained 5.28% — tops among all 11 sectors.

Residential REITs, which are heavily dependent upon mortgage rates, are performing particularly well and are forecast for strong finishes in 2024. Shares of Camden Property Trust, for example, were down around -1% from the start of the year through May 29, but have risen 14.48% since, alongside growing rate-cut expectations.

According to CBRE, a real estate services and investment firm, commercial real estate is also likely to begin picking up in the second half of the year. Specifically, "[d]emand for new data center development will attract more institutional investment in 2024, as investors reallocate capital from the office sector to real estate alternatives."

Tech remains king

Over the past month, tech is the only S&P 500 sector in the red, having posted a loss of -4.55%. Those losses have been recently punctuated by mega-cap companies like Nvidia and Amazon posting losses since July 10 of 8.58% and 7.99%, respectively. However, much of that selloff can be attributed to investors grabbing gains after a record run-up in share prices by the Magnificent Seven stocks.

The medium- and long-term forecasts for the tech sector remain incredibly strong. Demand for AI-enabling microchips, cybersecurity and cloud computing continues to grow exponentially. Subsequently, analysts' price targets for top tech stocks continue to allude to a higher ceiling, which is currently evidenced by Nvidia's 4.62% gain on Monday alone.

According to Deloitte's "2024 Technology Industry Outlook, "[p]redictions for growth in global IT spending in 2024 cover a range from 5.7% to 8% ... fueled largely by double-digit growth in spending for software and IT services in 2024. Analysts estimate that public cloud spending will grow by more than 20%, and they foresee stronger demand for cybersecurity. AI investment (not specifically generative AI) is also seen as contributing to overall spending growth. Economists have projected that AI-related investments could reach $200 billion globally by 2025, led by the United States."

Consequently, despite its recent pullback, tech remains one of — if not the — strongest sectors for investors for the remainder of the year and into next.

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