2023 was a great year for stocks , boosted by the artificial intelligence boom and hopes of an end to rate hikes. The S & P 500 rallied 24%, while the tech-heavy Nasdaq Composite ended 2023 up 43.4% in its best year since 2020. After such a strong showing, investors might be asking themselves if it’s time to take profit. There are still a number of uncertainties. The U.S. Federal Reserve might have signaled rate cuts in 2024, but also indicated an “unusually elevated degree of uncertainty” about the policy direction. According to recent minutes from the Federal Open Market Committee , several members said it might be necessary to keep the funds rate at an elevated level if inflation doesn’t cooperate, and others noted the potential for additional hikes, depending on how conditions evolve. Partial cash-out CNBC Pro asked experts for their take on whether investors should cash out — and if so, how to do it and when. A partial cash-out could make more sense right now, compared to a complete profit-taking, some of them say. “What does make sense is to rebalance,” said David Dietze, senior investment strategist at Peapack Private Wealth Management. He said 2023 was a year when only around 25% of the companies in the S & P 500 actually beat the rest of the index. “Reduce, not eliminate, exposure to those areas of the market that have done very well. The Mag 7 and indeed the Nasdaq 100 are examples.” In a Jan. 7 note, Citi echoed that outlook: “We believe a “broadening” of equity market performance is likely to co-exist with last year’s hottest sectors seeing some setbacks or meaningful pauses.” “Rebalancing will allow you to maintain exposure to what has done well, but reduce risk because if there’s sell off in that area you’ll have less money at risk,” Dietze said. When to rebalance and when to cash out But should investors rebalance right away or over time? Dietze prefers the former, to reduce risk as soon as possible. “But you could do say a reverse dollar cost average, reducing over exposure in a set amount over set periods of time until the goal is reached. That may be a way to get started if the decision is otherwise paralyzing or too uncertain to get started.” Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, also said he would prefer to trim some exposure to stocks right now. “We would be rebalancing, which should involve selling equities and rotating into fixed income,” he said. “We’re still close to all time highs/upper end of the trading range, which makes now a good time to trim.” He called for rotating into fixed income instead — at both the long- and short-term ends of the spectrum. Ray Sharma-Ong, multi-asset investment director at asset manager Abrdn, is of the view that the stock rally has “further legs,” but pointed out the need to be selective. Falling rates may boost tech and high dividend stocks, and in Asia, key beneficiaries will include Korean and Taiwanese stocks as well as REITs, he said. Indian stocks should also do well as markets with strong economic growth should outperform as global growth slows, he added. “In our view, investors should cash out under a scenario where inflation remains sticky, economic growth contracts significantly, and central banks indicate intention to hike aggressively prioritizing addressing inflation over economic growth,” Sharma-Ong told CNBC Pro, adding that it isn’t currently the case. Citi said in its note that it can still see a double-digit return for the average U.S. stock this year. “It does not take an aggressive S & P 500 earnings target to drive double-digit returns for more firms’ share prices in 2024. What it would take is a recovery in a wider swath of industry profits,” the bank said. “Last year’s profit decline for the majority of S & P 500 sectors suggest that a broader corporate earnings recovery is more, not less, likely.”
