Equities: New extremes and challenging opportunities Equities: New extremes and challenging opportunities Equities: New extremes and challenging opportunities

Equities: New extremes and challenging opportunities

Peter Garnry

Head of Saxo Strats

Summary:  The key question for equity markets in 2024 is whether there will be a recession. Investors should overweight commodity, cybersecurity, and defence stocks, as well as UK and European equities. They should underweight US mega caps.

It’s all about recession

The keyword for equities in 2023 was economic resilience. Everything was set for a recession amid the steepest policy rate increase in many decades. However, unprecedented US fiscal policy, and animal spirits unleashed by the mesmerizing proficiency of ChatGPT  helped the US economy avoid a recession and propelled technology stocks to new all-time highs. With the second-longest lag in US economic history since 1978, measured by the recession-free period since the leading index peak, the main concern in 2024 is the possibility of a recession.

Economists predict a 50% likelihood of a US recession, underscoring the challenges for investors as 2024 is not clear cut. China’s policy resolve is also still a big unknown. If history is any indicator, then equity markets have been mostly positive in the months around the first Fed rate cut, so for now, the market’s current pricing of rate cuts is not alarming.

Key equity themes to watch in 2024

Last year was another year of disappointment for Chinese equities, especially in comparison to countries winning in the fragmentation game as supply chains are increasingly avoiding China. These countries are India, Mexico, Brazil, and Vietnam, and we expect the equity market to continue favouring these emerging equity markets over China. It’s remarkable to observe that Chinese equities have underperformed in other key emerging markets by almost 44% in USD terms since early 2018.

Across equity themes we’re overweight in the commodity sector as the super cycle is still ongoing and is driven by strong global urbanization, green transformation investments, and constrained supply. Cyber security and defence stocks are also likely to continue benefiting from the ongoing geopolitical tensions in the world. 

If the market accelerates its bets on more policy cuts in 2024, then the battered green transformation stocks across wind, solar, energy storage, EVs and hydrogen could see a short-term boost.

Underweight mega caps as new extreme is reached

Last year will, undoubtedly, go down in the history books as the year of market extremes. The so-called “the Magnificent 7” (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla) gained 104% for the year, as of 15 December 2023, as hype over generative AI went into hyperdrive mode. In comparison, Nasdaq 100, S&P 500 and S&P 500 Equal Weight gained 53%, 25%, and 12% respectively. The Russell 2000 Index was actually down year-to-date in late October 2023 before the market aggressively repriced central bank policy rates for 2024.

As a result, the US equity market is at, or close to being at, the most concentrated it has ever been in the past 100 years. A frightening truth lies behind this fact. The outperformance cannot continue unless this small group of US technology companies take over the entire economy and continue to outperform steep growth expectations in 2024. The high index concentration also makes the US equity market riskier as returns are increasingly driven by a narrow set of risk factors with sentiment on technology stocks being one of them. Our key idea in 2024 is to be underweight US mega caps.

Value is found in UK and European equities

In UK and European equity markets, we find the exact opposite of “the Magnificent 7” with equity market valuations at 56%, and a 28% discount on US equity markets. As we don’t subscribe to US earnings being much better than Europe in the long-term, we believe expected returns will be higher in UK and European equities. So, if sentiment changes or economic activity slows down, these two equity markets also offer a higher exposure to defensive sectors.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992