Barbell Equity Exposure in ‘24

In this article, Russ Koesterich discusses why a different approach to portfolio construction within equities is warranted in 2024.

Key takeaways

  • 2023 was characterized by narrow leadership and multiple expansion.
  • While last year’s gains have led to headline valuations appearing stretched, there are many segments of the market that are not as aggressively priced.
  • With the expectation for more muted but broader equity returns in 2024, investors may want to barbell their equity exposure.

Last year’s sizeable and unexpected market rally was characterized by two, distinct themes: narrow leadership and multiple expansion. Gains were concentrated in a handful of names, and while several tech companies did post stellar earnings, most of the advance was driven by investors willing to pay more for a dollar of earnings (i.e. multiple expansion).

After the turmoil of 2022, investors took advantage of moderating inflation and the absence of a recession by bidding up most markets in 2023. With the notable exception of China, valuations rose in most equity markets. This was particularly true in two of last year’s big winners: the United States and Japan.