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Inflation, rates, & AI: J.P. Morgan Private Bank's outlook

As investors prepare portfolios for 2024, J.P. Morgan Private Bank Equity Strategist Abby Yoder tells Yahoo Finance stocks will likely march to new highs and AI will remain a dominant theme in 2024.

"We're focused on small to mid cap companies that we think are a little less known in the AI arena that will do well as they monetize the trend," Yoder said.

Yoder added: "Right now is a great opportunity in terms of fixed income... We're optimistic on equities. We're optimistic on bonds."

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

Video Transcript

SEANA SMITH: November certainly signaled something of a changing of the tide for the investment community, the higher-for-longer debate morphing into a back and forth over when the Fed will finally start cutting its benchmark rate.

JP Morgan Private Bank has launched its 2024 global investment outlook after the rate reset. It identified five key themes for investors to consider as we approach the new year. They include inflation settling, bonds being more competitive with stocks, and AI as the game changer. Let's dig into all of it.

We have Abby Yoder here joining us on set, JP Morgan Private Bank US Equity Strategist. And Abby, it's great to see you here again. So lots to dig into. And let's first start with that first point that was outlined there in the intro. Inflation is going to likely settle. How should investors be thinking about that in terms of what that means for investment opportunity?

ABBY YODER: Well, the important component of when we're thinking about inflation is kind of like this immaculate disinflation that's happened, right? So typically, historically what we've seen is when inflation is coming down, it's at the expense of the labor market.

And while we've seen some softening in the labor market, overall, inflation has been coming down on its own, right? It hasn't been at the expense of really the job market for that matter. You've seen wage is cool.

But importantly, what that means-- OK, what does that mean about the backdrop? That means the actual demand and economic growth backdrop has been very strong. And we expect that to slow into 2024 but to continue to remain resilient, again, driven by that strength in the employment picture but with inflation coming down, which gives the Fed more leeway as it relates to cutting rates.

BRAD SMITH: So a lot of people then would say, right now, yields look really tempting. So what is kind of the setup now going into 2024? Is it already as good as it gets and now you have to kind of reconfigure a little bit?

ABBY YODER: Well, I think right now is a great opportunity in terms of fixed income and what the setup looks like for us right now. We're optimistic on equities. We're optimistic on bonds. What that means for clients is you have more options.

There are different ways that you can construct portfolios and still get to that long-term return that you're looking for because this is the first time in a very long time-- let's call it 15, 20 years-- where bonds actually really do look attractive. And so there's just more portfolio construction options, I think, today than there were over the past 15 years.

SEANA SMITH: Abby, AI being a game changer was one of the topic points or one of the investment themes for you guys this year. Should we be thinking about it? Should investors be thinking about that in the lens of the Magnificent Seven? Or where could we else, I guess, see leadership from maybe some of those lesser known names?

ABBY YODER: No, I actually think there's gonna be a broadening out. Yes, we think the Mag Seven are gonna do very well next year. And that's driven by both cyclical and structural factors, cyclical being, you know, enterprise spend by different corporates, and then AI being the more structural part that we're gonna see a lot more companies start to monetize next year.

And that, again, broadens out outside the Mag Seven. So we're focused on actually smaller to mid cap companies that we think are a little bit less known in that arena that we think will do well in 2024 as they again start to monetize this trend as well.