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Bank of America shares top sector trades for 2024

Bank of America Head of Portfolio Strategy Michael Hartnett (BAC) wrote a note to clients explaining some of his top picks for 2024. Hartnett encouraged clients to expect a harsh landing for the US economy next year, and prepare themselves by buying stocks in the banking, retail, and utility sectors, among others, as well as placing investments in China.

Yahoo Finance Reporter Madison Mills breaks down Hartnett's net and what investors need to pay close attention to.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JOSH LIPTON: Some of the top trades of this year involve the Magnificent Seven. And Bank of America says they could be the top names to watch next year, too, but not in the way you might think. Madison Mills is here with the details.

MADISON MILLS: Well, it's exactly what you were sort of just talking about with these high valuations, right, some of these big names like a Hartnett from B of A are talking about looking outside of the Magnificent Seven but to some names that are tech adjacent, right? So he specifically talks about going long on distressed tech. If you look at the S&P biotech ETF for example, ticker XBI, he says that this example here tends to move opposite to rates, so that could be attractive as we are anticipating those rate cuts moving forward.

We're also seeing low valuations in some of those biotech names, which, obviously, is in very stark contrast to the valuations we're seeing in those top seven names that we talk about all the time. But I do want to contextualize this call from Hartnett, because those seven S&P 500 top names, they're gaining 71% this year. The other 493 stocks adding only 6% to the overall index. So I guess if you want to make an argument for more of a bull market next year, you kind of have to believe that some of these other tech names are going to grow.

JULIE HYMAN: OK. So you mentioned biotech, is there anything else that he sort of Zooms in on as potentially being winners here?

MADISON MILLS: He talks about investment-grade bonds for some of these tech Companies he says it's a way for you to own the balance sheet of those companies, rather than just owning the stock itself. And also talks about it as a potential hedge against any sort of hard landing. It's a different way to get in on the tech play.

He also talks about a blend of bond investment. He's bullish on 30-year Treasury bonds mixed with investment-grade bonds. So I thought that was interesting. It also raised this question to me of whether this stock-bond portfolio relationship that we always talk about is starting to shift a little bit with the 60/40 portfolio.

JULIE HYMAN: It's also interesting because, in the past, when we would have this like corporate bond conversation, there were very few ways for retail investors short of calling a broker to get in on it. But now there are ETFs that sort of wrap some of that corporate debt that are, you know, and some of them are actively managed. So it's kind of an interesting time on that front.

JOSH LIPTON: Yeah. Anything to the note, Maddie, that you saw that really surprised you?

MADISON MILLS: You know, I thought it was interesting that they were brave enough to talk about the Magnificent Seven as a play that's not going to continue moving forward, particularly given that Savita Subramanian still sees the S&P 500 target from B of A hitting 5,000 next year. I'm curious about how they square those two arguments, how are we going to see the S&P have that much growth if it's going to be outside of these big seven names. Is it going to be distressed tech, like he's saying here going long on distressed tech? I don't know. I don't know that we've seen great evidence of that. But I'm also not, you know, working at these banks. I just get to talk about it. So I have an easier job here.

JULIE HYMAN: Brave or we'll see if it still looks brave at the end of the year. Maddie, thanks so much. Appreciate it.

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