Stocks: Defense will win in 2024, says Evercore's Emanuel
With inflation cooling and the Federal Reserve signaling interest rate cuts in 2024, many investors and analysts seem to be adopting a bullish outlook for 2024. Could the market build upon its recent rally in 2024? Or are analyst and investors too optimistic? Julian Emanuel, Senior Managing Director of Evercore ISI, joins Yahoo Finance to discuss why he believes the market is not out of the woods just yet and why investors should consider a more defensive position.
Emanuel says he wants to be defensive in 2024, but notes that "defense can have certain different connotations... It's interesting that communication services is defensive even in a recession because you're going to get ad spend on both the election and the Olympics, consumer staples has not been able to "bank" any of the benefits of declining input costs. Remember, commodity prices have been down substantially the last several months as well as the benefits as yields coming off."
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Video Transcript
- And so Julian, so if I agree-- I'm listening to you right now, I'm an equity investor. I agree with your call. It makes sense to me how you're thinking about the economy, the markets. What sectors, Julian, do I want to be in in the stock market? What look attractive to you here? What looks constructive in 2024?
JULIAN EMANUEL: So again, as Julie pointed out in the beginning, Josh, is we prefer defense. But over the long sweep of history, defense can have certain different connotations.
We looked at the time from the last Fed hike to the first cut. And again, the market believes that it may be March, we think it's more like June. And frankly, you've had outperformance in consumer staples and health care and communication services. And it's interesting that communication services is defensive even in a recession because you're going to get ad spend on both the election and the Olympics.
Consumer staples has not been able to, quote unquote, "bank" any of the benefits of declining input costs. Remember, commodity prices have been down substantially the last several months as well as the benefit of yields coming off.
And in health care, to us, the story is really an immunity to geopolitics and interest rate fluctuations and a diminution in labor input pressures. So all of those really do say defense does win in 2024.
- And that's interesting. I like the reframing of what defense means. Julian, finally, I kind of want to start where you began, which is looking back at 2021 and what people projected for 2022. Looking back at '22, what people predicted for '23 and what they got wrong. What are you most concerned about getting wrong going into next year? What's the biggest risk there?
JULIAN EMANUEL: Well, look, you get given our call that the first half is likely to have a downside bias. The strength of the tape right now would tell us that the biggest risk to us is that markets just keep going.
But again, this is one of these things where when you think about it, there has only ever been one, quote unquote, "soft landing" in history. That was 1995. And from our point of view, the valuation jump-off point, particularly as far as growth and technology is concerned, which has been the leadership throughout 2023, it's a much different jump-off point.
So could the market keep going? Absolutely. But again, to us, the risk reward for that being something that occurs is really far out there. Something that we don't think is something that the investors are best off positioning for.
- Julian, great to catch up with you as always. Thanks so much for spending some time with us. Julian Emanuel of Evercore ISI. Thank you.
