The "Magnificent Seven" - and two uncertainty factors

2023 has been an excellent year for investors - despite all the external disruptive factors such as the war in Ukraine and the Middle East. The DAX jumps a good 20 percent. Is the air now getting thinner or will the rally enter the next round and break through the 20,000 mark?

After a very mixed stock market year in 2022, 2023 is off to a promising start. However, as early as spring, the good mood threatens to tilt, share prices tumble and memories of the financial crisis almost 15 years ago come flooding back: the US banking sector is in turmoil, with several regional financial institutions getting into difficulties. The US Federal Reserve (Fed) has to intervene, does so - and calms the nervous markets. In the summer, it then comes around the corner with the first glimmer of hope regarding a turnaround in interest rates, leaving investors to fantasize about the first interest rate cuts later in the year. At the end of the stock market year 2023, the DAX and S&P 500 are both up around 20 percent.

"Confidence in the Fed is enormous, in line with the motto: the Fed will sort it out," says financial market expert Benjamin Feingold from Feingold Research, looking back and equally looking ahead: "So far, it looks as if the Fed has done everything right," he says, referring to the Fed's interest rate policy. "If it stays that way, we should be facing a positive stock market year in 2024."

Marco Herrmann, Managing Director of Fiduka Depotverwaltung, shares this opinion: "After the sell-off in 2022, the Fed's interest rate policy also ensured that the past year was balm on investors' wounds," he explains. "It went better than we thought. But we also believe that it's not over yet and that the markets can continue to rise." He is optimistic for the stock market year 2024. "We are in a phase where monetary policy should become less restrictive and inflation will come back a little: that's a good combination," emphasizes Herrmann. However, he qualifies: "But economic growth must be present."

"That's the sticking point in my view," says Carsten Riehemann, Managing Partner of asset management firm Albrecht, Kitta & Co: "If the US economy slides into recession, there will be problems. However, we do not expect this at all," he emphasizes. "Moderate growth in the world's largest economy should be sufficient for a fundamentally positive environment for equities."

Possible disruptive factors already in sight

However, Riehemann admits that external disruptive factors could also cause "at least short-term fluctuations" in 2024. He refers to the upcoming elections in Taiwan in January and the US presidential election at the end of the year. Herrmann and Feingold also advise investors to keep an eye on these two political events: "We have a super election year ahead of us," says Herrmann. "Depending on the outcome of the election in Taiwan, China's government could feel compelled to take political, economic and perhaps even military action - even if the latter is very unlikely."

"The real big unknown is the US presidential election in November," stock market expert Feingold is also certain. "The popularity ratings of incumbent Joe Biden are in the basement. At the moment, there are many indications that Donald Trump will be the Republican challenger. According to polls, his chances of being elected US president are currently high," he explains. "Looking back, investors could at least not complain about President Trump. Geopolitically, things look different: America First, trade disputes with Europe and China. A lot of china has been broken," Feingold explains: "Trump is the great unknown."

According to Fiduka Managing Director Herrmann, caution is also required with regard to the wars in Ukraine and the Middle East: "The crisis in the Middle East could spread to other countries, which in turn could put a strain on oil and gas production and affect the global economy." In addition, the war in Ukraine is deadlocked, "which could well offer potential for escalation."

Ongoing issues of inflation and interest rates

None of the three experts see any major potential for escalation when it comes to the perennial topics of interest rates and inflation. "Inflation will remain an issue in 2024, but in a much weaker form," says portfolio manager Herrmann. "We assume that euro inflation will be between two and four percent. But that will be for years and probably in the upper third of the range." Riehemann speaks of a "high two or low three" in the eurozone. In the USA, he sees the inflation rate "tending to be around the two percent mark".

According to the experts, there will be several interest rate cuts in the USA in 2024. "Three to four are currently expected by the market," says Feingold. "That suggests a first cut as early as spring. However, if this doesn't happen, there is potential for disappointment," he explains. "Above all, investors should keep an eye on the central banks' interest rate policy in 2024 - and they should diversify," says Albrecht, Kitta & Co. partner Riehemann.

How much is in it now?

"Technology as a whole remains interesting, in all possible forms," explains Riehemann. "The Magnificent Seven play a major role here simply because of their high weighting," he says, referring to Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. "Whenever an index purchase is made on the S&P 500 or the MSCI World, these stocks benefit disproportionately compared to other stocks. As a result, their valuations continue to climb."

"Semiconductors are needed almost everywhere, which is why chip stocks are likely to remain in the focus of investors in 2024," says Fiduka Managing Director Herrmann, speaking of a "super cycle" in the chip sector. "In the DAX, this could fuel Infineon. Classic growth stocks could also come back into focus."

In addition to the semiconductor sector, the area of artificial intelligence (AI) applications will also remain in demand, as stock market expert Feingold explains. "There is also pent-up demand in the healthcare sector in particular. Small caps and cyclicals could also be in demand in 2024," says Feingold. "In general, however, market gains will increase across the board." He believes "eight to ten percent" growth is possible for the DAX and is therefore on the same wavelength as Herrmann. However, both experts also say that "clear predictions are difficult". Who knows, maybe the 20,000 mark on the DAX will fall in 2024?