The last CNBC Delivering Alpha Stock Survey of 2023 reflects substantial confidence from 300 investors, traders and money managers in the Federal Reserve and Chairman Jerome Powell.
The Fed received an impressive 88 percent rating of "excellent" or "good" for its performance in 2023, surpassing the previous 77 percent rating three months ago. Over half of the respondents anticipate a rate cut to begin in the second quarter of 2024.
At its final meeting of the year, the Fed maintains its benchmark short-term rate within the 5.25 to 5.5 percent range, a 22-year high. Fed officials anticipated to reduce the rates next year by three-quarters of a percentage point to a range of 4.5 to 4.75 percent, as estimated in their median projection.
Nevertheless, according to some economists, the Fed is potentially underestimating the speed at which inflation will decline next year and the extent to which it will decrease interest rates. Ian Shepherdson, chief economist of Pantheon Macroeconomics, wrote in a note to clients that the market maintains its belief that the Fed may cut rates faster.
Throughout 2023, Powell warned about the prolonged and uncertain path for inflation to reach the central bank's 2.0 percent target. This caused Americans' confidence in inflation returning to normal to diminish. In addition, 33 consecutive months of rapid price increases significantly affected many Americans, particularly those with lower incomes.
This issue might persist in 2024, although market observers are more confident now that rate cuts will happen soon.
Apart from stubborn inflation, commercial real estate issues were predicted to be the primary risk factors next year. Geopolitical tensions and China's military were marked as other potential concerns. However, around 85 percent of the surveyed individuals considered the 2024 elections insignificant to their investment strategies.
Stocks outlook
The favorable outlook has influenced investment preferences, with 28 percent of participants choosing the S&P 500 as their primary investment option. Around 77 percent expressed confidence that the Magnificent 7 stocks would outperform the broader S&P 500. Meanwhile, 16 percent would focus on Nasdaq 100 stocks.
Approximately 12 percent of respondents anticipated China to have the strongest growth, closely followed by Japanese stocks, high-yield bonds, long-range U.S. bonds and Bitcoin, all at eight percent each. However, despite nearing its record highs, gold did not emerge as a favored investment for 2023.
The survey revealed that over half of the investors, around 58 percent, expressed a preference for investing in big-cap tech as their favored area for AI investment.
Forty-four percent of respondents selected Microsoft as their primary stock. Amazon followed as a distant second at 24 percent, while Nvidia secured 12 percent of the votes after its significant performance in 2023. Alphabet, Apple, Meta and Tesla received single-digit preferences.
Oracle, previously backed by analysts, received no support in the survey. According to FactSet, among 27 analysts, only 14 have a buy rating, 12 are neutral and one suggests selling the stock. Once considered an undervalued AI investment, Oracle is currently 17 percent below its June high.
The financial sector is projected by 35 percent of respondents to be a leading performer in the upcoming year, closely followed by high-dividend stocks.
In 2023, healthcare, energy, consumer staples and utilities were the worst-performing sectors, with utilities declining by 11 percent. However, healthcare is projected to have significant investment potential by 56 percent of investors. Looking ahead, 24 percent chose energy stocks, 12 percent consumer staples and eight percent utilities for potential rebounds next year.
If market conditions turn turbulent, 35 percent prefer money markets as the safest haven, followed by 31 percent choosing U.S. bonds and 19 percent opting for cash. Merely seven percent would select gold, while four percent show interest in crypto and real estate.