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AS THE SEESAW LEVELS, TIME TO MAXIMIZE DIVERSIFICATION

While 2023 has seen the S&P 500 .SPX rally more than 24% so far, a large portion of those gains were concentrated in a small number of stocks, known as the "Magnificent Seven" and there will be a once in a generation chance next year to take advantage of that myopic view among investors, according to Richard Bernstein Advisors.

In their 2024 outlook, RBA notes that 2023 will "likely go down in history as a year of extreme speculation," citing the stunning performance of the Magnificent Seven names such as Nvidia NVDA.O and Meta Platforms META.O even as their "fundamentals and growth prospects were not all that unique."

In addition, cryptocurrencies surged, with bitcoin BTC= up more than 160% this year in what RBA sees as another example of aggressive speculation.

As such, the firm sees a big opportunity for investors willing to diversify next year, as "the idea that there are only seven growth opportunities throughout the entire global equity market is categorically wrong, and our portfolios are fully embracing the broad range of attractive investments investors appear to be ignoring."

In an interview with Reuters, chief executive officer and chief investment officer Richard Bernstein said while it's fine that 2023 was a speculative year, that resulted in other growth stories being missed.

"Think of the markets as a seesaw and on one side of the seesaw, you have the Magnificent Seven, and on the other side of the seesaw you have everything else in the global equity market. And we kind of rhetorically ask, 'are there really only seven growth stories in the entire world?'"

Bernstein likened 2023 to the tech bubble at the turn of the century, in which stocks that saw tremendous rallies in the tech, media and telecom space, subsequently tumbled as the S&P 500 churned for essentially a decade, but "things like energy and emerging markets were up a lot."

As such, Bernstein sees a potential replay of that decade where the Magnificent Seven significantly underperform "but other sectors, industries, countries, and investment themes that are currently being ignored could present excellent opportunities,"

RBA is optimistic about U.S. small caps, U.S. cyclicals such as energy, materials and industrials, and non-U.S. and emerging markets. Industrials could benefit as contracting globalization becomes a longer-term investment theme.

As for the outlook on Fed policy, Dan Suzuki, deputy chief investment officer said, "your best indication of what the Fed is going to do is really to just focus on what is growth doing."

"There have been resilient surprises to the upside, so in that environment it doesn't make sense that you are going to see these big cuts. Now if that changes then your Fed outlook should change."

(Chuck Mikolajczak)

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FOR WEDNESDAY'S OTHER LIVE MARKETS POSTS:

LAYING OUT THE ROADMAP TO A RATE CUT - CLICK HERE

ROCKIN' AROUND THE DATA TREE: CONSUMER CONFIDENCE, EXISTING HOME SALES, ET AL - CLICK HERE

U.S. STOCKS LITTLE CHANGED IN EARLY TRADE - CLICK HERE

MARKET BREADTH RUNNING, BUT NOT WITHOUT HURDLES - CLICK HERE

EUROPEAN EQUITIES COULD BEAT U.S. IN CASH RETURNS NEXT YEAR - PICTET - CLICK HERE

STOXX DIPS, ARGENX DRAGS, LONDON SHINES - CLICK HERE

UK INFLATION CHEER BOOSTS FTSE FUTURES - CLICK HERE

DOVISH POLICY SIGNALS KEEP STOCKS CLIMBING - CLICK HERE

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)