2024 Stock Market Predictions from Vanguard, BlackRock, & State Street: ETFs to Watch

What BlackRock Says (And ETFs to Pick If You Believe Them)

Macro Outlook: "Our bottom line for 2024: This is a regime of slower growth, higher inflation, higher interest rates and greater volatility. Investors need to take a more active approach to their portfolios. This is not a time to switch on the investing autopilot; it’s a time to take the controls."

• Translation for ETF Investors: BlackRock’s expectation of heightened volatility aligns well with the strategy of actively managed covered call ETFs like the JPMorgan Equity Premium Income ETF (
  JEPI
  -0.47%
  ).

Higher volatility often leads to increased options premiums, making a strategy like JEPI's more lucrative. In environments where markets move sideways, covered call strategies tend to outperform, as they can generate income even when stock prices are stagnant.

Additionally, JEPI's portfolio consists of lower beta large-cap stocks, which are typically less volatile than the broader market.

On inflation: "We are tactically neutral and strategically underweight long-term Treasuries. Our largest strategic overweight is instead to inflation-linked bonds. We see inflation staying closer to 3% in the new regime than policy targets, making this one of our strongest views on a strategic horizon. "

• Translation for ETF Investors: BlackRock's stance on inflation and long-term treasuries suggests that investors might reconsider their approach to fixed income.

For those anticipating inflation to stay, short-term Treasury Inflation-Protected Securities (TIPS) ETFs like the Vanguard Short-Term Inflation-Protected Securities ETF (

) could be more favorable than long-term Treasury funds like the iShares 20+ Year Treasury Bond ETF (

TLT

-0.5%

).

TLT, despite consecutive losses in 2022 and 2023, attracted significant inflows but might not be well-suited in a persistent higher inflation scenario.

On Sectors: "We’re overweight the AI theme in developed-market stocks on a six-to-12-month horizon. We see the tech sector’s earnings resilience persisting and expect it to be major driver of overall US corporate profit growth in 2024."

• Translation for ETF Investors:  BlackRock’s overweight position on the AI theme and the tech sector's resilience could guide ETF investors towards specific tech-focused funds.

Options include The Technology Select Sector SPDR Fund (

) and the Vanguard Information Technology ETF (

VGT

+0.15%

), both providing broad exposure to the tech sector. For those focused on the semiconductor industry, crucial in the AI ecosystem, ETFs like the iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (

SMH

-0.04%

) could be appealing.

Alternatively, the Invesco QQQ Trust (

), which includes major tech players like Apple, Tesla, Amazon, Meta, Alphabet, and Nvidia, could offer a diversified approach to capitalizing on the sector's growth.

What Vanguard Says (And ETFs to Pick If You Believe Them)

Macro Outlook: "Vanguard anticipates that the US and other developed markets will grapple with mild recessions in coming quarters and that central banks will cut interest rates, likely in the second half of 2024, amid growth challenges and inflation falling toward the banks’ targets."

• Translation for ETF Investors: If Vanguard's predictions hold true, it would be prudent for investors to consider overweighting equities in defensive, low-beta sectors. These sectors, including healthcare, consumer staples, and utilities, typically offer more stability during economic downturns and recessions.

Relevant ETFs include the Vanguard Consumer Staples ETF (

), Vanguard Utilities ETF (

VPU

+0.14%

), and Vanguard Health Care ETF (

VHT

-0.41%

). These funds can provide exposure to industries that historically have been more resilient during periods of economic uncertainty.

On Interest Rates: "US policy rate at 3.5% to 4% by year-end. We believe that the Fed is at or near the end of its rate-hiking cycle, though we don’t expect it will cut interest rates until the second half of 2024. Thereafter we expect several cuts as economic growth stalls and the labor market softens. "

• Long-duration Treasury securities are likely to benefit most from rate cuts, as they are more sensitive to interest rate changes. For investors looking to capitalize on this scenario, an ETF like the Vanguard Extended Duration Treasury ETF (
  EDV
  -0.71%
  ) could be a suitable option.

EDV invests in Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) which have significant duration and are highly sensitive to interest rate movements, making them potentially more responsive to the anticipated rate cuts.

What State Street Says (And ETFs to Pick If You Believe Them)

Portfolio Construction: "Investors should consider: a core multi-factor US strategy that blends Quality, Value, and Minimum Volatility to capture a quality-centric upside with a defensive bias; the insurance industry’s strong pricing power, to target areas with reliable growth; tech leaders across Information Technology, Communication Services, and Consumer Discretionary sectors to capture AI-related tailwinds; and dividend growth strategies, to lower volatility when pursing upside."

• Translation for ETF Investors:  State Street’s recommendation suggests moving away from broad market index ETFs towards more targeted factor ETFs.

Prominent ETFs that capture these elements include the iShares MSCI USA Quality Factor ETF (

), the Avantis U.S. Large Cap Value ETF (

AVLV

+0.03%

), and the iShares MSCI USA Min Vol Factor ETF (

USMV

-0.54%

).

For high-beta AI tailwind exposure, the SPDR Select Sector lineup offers ETFs like The Technology Select Sector SPDR Fund (

), The Communication Services Select Sector SPDR Fund (

XLC

+0.23%

), and The Consumer Discretionary Select Sector SPDR Fund (

XLY

-0.72%

), all available for a fee of 0.10%.

Finally, State Street's emphasis on dividend growth strategies aligns with a quality-focused approach. Major funds in this category include the iShares Core Dividend Growth ETF (

) and the Vanguard Dividend Appreciation ETF (

VIG

-0.37%

).

On Inflation and Geopolitics: "Either increasing a strategic allocation to gold, or introducing an initial portfolio position now, could potentially benefit investors amid rising geopolitical risks, a mean-reverting weaker dollar, and stubborn inflation."

• Translation for ETF Investors:  Investors looking to add gold to their portfolios have options like the SPDR Gold Trust (
  GLD
  -0.78%
  ) and the SPDR Gold MiniShares Trust (
  GLDM
  -0.76%
  ).

GLD, while pricier with an expense ratio of 0.40%, offers high liquidity. GLDM, on the other hand, has a lower expense ratio of 0.10%, making it a more cost-effective option for gaining exposure to gold prices. Both ETFs are physically backed, providing direct exposure to the price movements of gold.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.