Stock market sectors that are most likely to grow in 2024

Investors who are seeking good share price gains in 2024 may need to be picky. Here’s where analysts think the growth will be.

The share market’s retreat from near-record highs in the past week has put a spotlight on stock selection, and some sectors are set to perform better than most this year.

Real estate investment trusts, health care and technology are among the sectors tipped to shine, while commodities and building materials companies could struggle.

William Buck wealth advisory director Adrian Frinsdorf said 2024 was likely to a challenging year but there was selected value in the market.

“We are factoring in a very slow global and national economy with interest rates staying higher for longer in Australia before eventually dropping back again,” he said.

Healthcare was one sector that was well-placed, Mr Frinsdorf said.

“We’ve seen valuations become more reasonable in recent times as a result of falls in the share prices of CSL, Resmed, Ramsay Health Care and Sonic Healthcare,” he said.

The small cap sector could struggle this year as investors chased earnings certainty and focused on the track record of blue chips, Mr Frinsdorf said.

Adrian Frinsdorf expects a challenging year for stocks.

“In this environment, and with household budgets being squeezed, companies with defensive and predictable earnings such as non-discretionary retail stocks generally outperform,” he said.

“The REIT and finance sectors also stand to benefit when interest rates begin to soften.”

“Stocks likely to underperform are those that rely more heavily on the global economy such as building material companies, commodities and discretionary retail.”

Ausbil Investment Management executive chairman Paul Xiradis said value was emerging in quality REITs, “particularly those with exposure to data centres and housing given population growth”.

“Certain names within the infrastructure space are also offering value following the recent downward adjustment in prices,” he said.

Mr Xiradis said earnings growth would be harder to find in 2024, and the overall market was expecting negative earnings growth in the 2023-24 financial year.

“In the non-resource sectors, better earnings growth outcomes are likely in the health care, technology, telecommunications, commercial services, and to a lesser extent the banking sector,” he said.

“The ASX is now offering quite a unique range of tech names and opportunities, in online services, data centres, AI, data security and many other areas.

“Australia has some impressive technology-driven firms operating across different sectors that are global leaders in what they do … such as Block, Xero, Altium, Carsales.com, REA Group, Domain Group, Webjet, Life360, Megaport, WiseTech Global and NextDC.”

Ausbil favoured tech stocks with underlying sustainable cashflows and strong, growing earnings, Mr Xiradis said.

Paul Xiradis says value is emerging in some REITs. Picture: Jane Dempster

“We are expecting to see some rerating of quality information technology stocks, especially those that are earnings positive and have strong EPS growth outlooks,” he said.

Capital.com senior financial market analyst Kyle Rodda said the market was at a crossroads, and its performance would depend on whether 2024 brought a recession or soft landing.

“Depending on which way it takes hold will tell you a lot about which areas of the market will outperform,” he said.

Mr Rodda’s view was that “we might be heading more towards the recession direction when it comes to global economic growth”.

“It might be more of an environment conducive to more defensive assets, and under those circumstances you start to look at health care to a certain extent, and utilities stocks, which surprisingly underperformed last year,” he said.

Mr Rodda said resources could be a sector under strain, as some miners were “very richly valued” after a surge in iron ore prices.

Originally published as Stock market sectors that are most likely to grow in 2024