In this article, we will take a look at the 12 big investment trends in 2023.
Goldman Sachs published its 2024 US economic outlook report on November 12 and said that the “heaviest blows” from fiscal policy tightening are behind us. Goldman Sachs said the US GDP growth in 2023 despite the difficult odds was surprising. It believes the Fed’s 2% inflation target is now well in sight. In light of this Goldman Sachs believes there’s only a 15% probability of recession over the next 12 months. Goldman Sachs thinks Personal Consumption Expenditure inflation could fall to 2.4% by December 2024 as it expects continuous disinflation throughout the year.
Goldman Sachs also outlined its expectations around expected rate cuts from the Fed next year:
“We expect the FOMC to deliver its first rate cut in 2024Q4 once core PCE inflation falls below 2.5%. We then expect one 25bp cut per quarter until 2026Q2, when the fed funds rate would reach 3.5-3.75%. While we see rate cuts next year as optional in that they are not necessary to avoid recession, we expect the FOMC to conclude that while neutral might not be as low as the 2.5% median longer run dot, it probably is not as high as 5.25-5.5%, so some amount of normalization makes sense as inflation falls. We think this rationale is enough to cut to 3.5-3.75% but probably not further. Our forecast could be thought of as a compromise between Fed officials who see little reason to keep the funds rate high once the inflation problem is solved and those who see little reason to stimulate an already-strong economy.”
For this article we scoured online investment forums, including Reddit’s investing communities, investment reports about 2023 themes of the stock market, read and watched expert interviews and surveyed mainstream financial media to gauge the biggest investment trends of this year.
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Big Investment Trends in 2023
12. Investing in Emerging Markets
Investing in emerging markets became popular in 2023 as investors seek to hedge against the uncertainties in the US markets. Earlier this year, about 61% of the 234 money managers who took part in a Bloomberg survey had said that they plan to increase their exposure to emerging markets.
“Economies in the developing world are far more resilient places today than they were 30 years ago, and EM central banks have been largely more responsible in dealing with the rise in inflation than the developed world has been,” said Justin Leverenz from Invesco Developing Markets Fund, according to Bloomberg.
Many investors are looking beyond major American stocks like Alphabet (GOOGL), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) and finding small companies in emerging markets to invest in.
11. Investing in Sectors That Will Gain from Aging Population
BlackRock in its mid-year outlook 2023 report had highlighted aging population as one of the most important trends in the world. Aging population is having multiple effects in the investing world and it’s also impacting the healthcare and consumer industry. BlackRock said that the increase in aging population in the US and UK could result in permanently high interest rates due to distortions in demand and supply dynamics.
10. Popularity of Instagram, Facebook, and YouTube Among Retail Investors
According to a report on 2023 investment trends by market research firm Mintel, Instagram, Facebook, and YouTube remain the top platforms used by retail investors for investing-related education and decision making. The report said that while many use Reddit’s investment-related subreddits, Instagram, Facebook, and YouTube beat Reddit.
That social media has become a go-to place for retail investors to find out which stocks to buy or sell is not a secret. The pandemic days highlighted the huge importance of social platforms, especially Reddit, in the investing world. Major hedge funds had to give in to the power of social media investors, while companies like GameStop and AMC enjoyed huge stock jumps driven by Reddit-based communities. Investors are using these platforms to find small-cap growth stocks as they look beyond already mature stocks like Alphabet (GOOGL), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA).
9. Investing in Defense Stocks
Geopolitical tensions are on the rise in the world. Russia’s invasion of Ukraine had already put defense stocks in the spotlight. But in October, amid the launch of a brutal conflict between Israel and Hamas, defense stocks gained even more. The iShares U.S. Aerospace & Defense ETF jumped 7% since October 7 through October 18. Analysts believe the war in Ukraine and Israel’s intention to expand its war against Hamas, along with the possible entry of Iran and Lebanon into the war, could bring in more money for defense contractors.
Some major defense stocks investors are currently watching include AeroVironment, Kratos Defense, Lockheed Martin (LMT), Northrop Grumman (NOC), L3Harris (LHX), RTX (RTX), General Dynamics (GD) and BAE Systems (BAESY).
In its Q3 earnings call, Lockheed Martin’s management talked about its future expectations with a special focus on orders it’s receiving from Israel, Taiwan, Ukraine, among other customers:
“Given the current status of the 2024 U.S. defense budget, global geopolitical tensions and the macroeconomic environment, we will provide our expectations for our 2024 financial outlook during our full year 2023 earnings call in January. On the U.S. budget, though the specific trajectory of the future U.S. defense budget is still in process between the administration and Congress, the global threat landscape is increasingly elevated. Our robust backlog reflects the relevance and importance of the Lockheed Martin portfolio and elevating deterrence to great power conflict involving the United States and its allies and the solid positioning of our business to serve our domestic and international customers. From a process standpoint and government, the current continuing resolution or CR is in place through November 17.
At that point, one of the following could occur. FY ’24 appropriations bills will be enacted, Congress will enact another partial or whole CR or there could be a partial or full government shutdown. In any of these scenarios, there continues to be the option also for supplemental requests related to support Ukraine, Israel and potentially Taiwan. As Congress continues to work through the FY ’24 appropriations bills, we are optimistic that there will be consistent support for the National Defense strategy and funding for its priorities. In the meantime, we will continue to work with our customers and suppliers to minimize any potential disruptions due to the process.
Read the full earnings call transcript here.
8. Crypto
Crypto was a major investment trend in 2023 as digital currencies rose from their ashes despite major headwinds and setbacks. Crypto jumped along with growth and tech stocks like Alphabet (GOOGL), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). In June 2023, Bitcoin reached its highest level since June 2022. Bitcoin was up by almost 90% since the start of 2023.
As a result of these positive trends crypto companies saw a strong third quarter. For example, Coinbase’s revenue in the third quarter jumped by 14% to $674 million, much higher than the Street’s forecast of $654.7 million.
During its Q3 earnings call, Coinbase talked about the rising popularity of crypto with some data and its future plans. The company said:
“American crypto holders are owed clarity and they are an increasingly expanding voter base. There are 52 million crypto holders in the United States. To put that into context, that’s more than the owners of electric vehicles and more than all collective members of U.S. Unions. The American people are embracing crypto as more Americans grow unhappy with the traditional financial system. Only 9% of those surveyed say that they are satisfied with the current U.S. financial system, and only 22% of people think that it’s better than any other countries and nearly two in five younger people that’s 38% say crypto and blockchain can increase economic opportunities for them in ways traditional finance can’t. To aid in the mission of driving for crypto regulation, Coinbase is a proud supporter of an independent movement known as Stand with Crypto that now has more than 100,000 advocates and continues to stand with the American people to drive towards clarity in the U.S. While the U.S. continues to struggle to keep pace, the rest of the world has made great strides in embracing crypto and Onchain technology with clear legislation.
We are seeing global efforts to bring crypto into regulatory scopes as 83% of the G20 nations are adopting crypto regulations. Most recently, we’ve seen this with MiCA legislation in Europe, and it’s incredibly encouraging to see that now 27 countries stand together with one unified set of rules for crypto, something the U.S. desperately needs. In response to this groundbreaking regulation, Coinbase moved quickly and recently announced that … [read the full earnings call transcript here]”
7. Big Tech Stocks
The rise of the “Magnificent Seven” – Alphabet (GOOGL), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – was one of the most noticeable trends in the investment world in 2023. Most of the S&P 500 gains came from these companies this year. A Bloomberg report in October said that Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), AAmazon (AMZN) and Nvidia (NVDA) accounted for about a quarter of the S&P 500’s market cap. Many bears and skeptics say this concentration of gains is not a healthy investment trend and shows the broader market remains weak. For example, as of the end of October, the S&P 500 was up 10.69% in 2023. But remove the gains posted by the Magnificent Seven group and you are left with just a 0.03% gain for the S&P 500 index in the same period. Most of the gains reported by these major tech companies were due to the AI-driven rally which many call a bubble.
6. Treasury Bills
Investing in T-Bills was one of the biggest investment trends in 2023, thanks again to uncertainty and rising interest rates. Investors bought a whopping $1 trillion of new notes in just three months through September 10, according to data from Bloomberg.
5. Options
Options trading saw a record growth in popularity among retail investors this year. Options allow an investor with more flexibility and give them a cushion against uncertainties. A Bloomberg report quoted Gareth Ryan managing director of IUR Capital, an equity, derivatives and advisory firm based in London, who said:
“We’ve seen speculative money move out of crypto and into options, given all the risk around the former. Options are not seen as being outright speculative anymore.”
4. Low Carbon Investments
While investments in green technologies and low-carbon solutions are not peculiar to 2023, this year saw pronounced interest from investors in renewable energy resources and low-carbon startups. A latest Bloomberg report says that the third quarter of 2023 was the best quarter for climate technology companies in two years as they received a whopping $16.6 billion in investments. These companies include decarbonization and low-carbon startups.
3. ETFs
Persistent rate hikes, inflation, uncertainty in the stock market and an overall propensity of investors to hedge against risks gave a huge boost to ETFs in 2023. According to data from Morningstar, new exchange-traded funds (ETFs) in the U.S. marketplace are on track to hit record highs this year.
A whopping 391 new ETFs started trading in 2023 through October 27, a massive jump from 311 new ETFs in the same period in 2021.
A Reuters report quoted John Hooson, managing director for ETF Product at BBH, who said that ETFs are rising in popularity as investors tend to tackle volatility and effects of rising rates. Money managers are creating new, innovative ETFs to attractive investors. For example, amid the AI wave, 2023 saw a flurry of AI-focused ETFs.
2. Cash
When inflation and rising interest rates caused stocks to lose their allure in 2022, many analysts and investment gurus were predicting that cash would be the kind in the months and years to come. Earlier this year, two-thirds of the respondents in an MLIV Pulse survey involving 404 professional and retail investors said that cash in their portfolios would improve their portfolio performance. Cash’s allure is tempting for even the Oracle of Omaha, Warren Buffett, who is famously against cash hoarding and always wants to put his money to work. Latest data shows that Berkshire Hathaway Inc.’s cash pile reached a whopping $157.2 billion in 2023 amid lack of attractive deals, interest rate hikes and an overall uncertain economic environment.
Amid rising risk and lackluster performance of stocks, money managers were recommending their clients to give importance to cash. A Bloomberg report quoted Leo Kelly, chief executive officer at Verdence Capital Advisors, who said:
“We’re encouraging people that it’s okay to hold cash, that it’s not just a lead weight on your ankle weighing you down. You can get a nice yield and there will be a lot of volatility in the markets and lots of chances to put that cash to work at attractive levels.”
1. AI
No surprises here. Artificial Intelligence was the biggest and most popular investment trend in 2023 and analysts expect AI and its different sub-segments to dominate the investment horizon for several months and years to come. Funding raised by AI-focused companies reached a whopping $17.9 billion in the third quarter of 2023, data from PitchBook shows, Bloomberg reported. This figure has surpassed all other sectors and segments. The Bloomberg report also said that the value of funding for AI companies jumped 27% in the third quarter when compared to the previous year. Research from Goldman Sachs said that investments in different areas of AI could reach $200 billion by 2025. Researchers at Goldman also said that generative AI and its branches could increase productivity by 1% ever year through the next decades.
In light of this trend major companies like Microsoft, Apple and Alphabet are pouring billions into the AI domain. Companies are launching AI-focused venture funds and are integrating generative AI features into their products.
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Disclosure: None. 12 Big Investment Trends in 2023 is originally published on Insider Monkey.
