As 2023 wraps up, let's reflect on ASX sector performances this year and peek into 2024. Where to buy? Which companies are overvalued? Factors like inflation, interest rates, China's recovery, and geopolitics shaped sector outcomes.

The technology sector has captured the attention of investors both locally and globally in 2023 after sharp sell-offs in 2022. The volatility since the COVID-19 rally for the high growth sector has been a rollercoaster of highs and lows that saw investors pile back into the tech sector this year, mostly driven by the hype around Artificial Intelligence. AI has been the term of 2023 given its hyper efficiency nature of delivering operational excellence, however investors need to be aware before backing a company based on saying they are investing in AI vs companies actually making material investments in AI. The sector is up 21.5% in 2023 on the ASX to lead the gains among the 11 sectors with key names making waves this calendar year. While companies like Life360 (ASX:360) have prevailed through the tech rally with shares in the location tracking technology company up 58% in CY23 as the company continues to prove cash flow positivity, others are facing slowing earnings outlook for FY24 including Wisetech Global (ASX:WTC). Investor appetite for high growth stocks has rebounded given the certainty around interest rate peaks, however when investing in the sector it is important to analyse the fundamentals behind the company and whether they have profit on the horizon, a strategic growth outlook and material investment in AI.

Consumer staples stocks have faced some headwinds in 2023 despite higher interest rates traditionally favouring companies in this sector as higher costs can be passed on without impacting demand. Tailwinds we saw in 2022 have turned to headwinds in 2023 for some key names which is what sparked investors to sell out in 2023, with the sector down 6.5% year-to-date. The supermarket giants have remained resilient as they have successfully passed on rising costs and managed debt well while also rewarding investors with consistent dividends, but for other companies like Ingham’s Group (ASX:ING), feed cost inflation is hurting margins in the current macro environment which has led to lower earnings outlook and the expectation of consumer demand for chicken to slide as alternative protein prices like beef and lamb decline. While this sector is down in 2023, staple names like Woolworths (ASX:WOW) and Costa Group (ASX:CGC) remain key staple investments within portfolios as shares in these companies are up 5.5% and 13.50% respectively year-to-date.

Discretionary stocks have surprised the market this year as investors and economists’ alike expected consumer spend in the discretionary space to ease given the 13 interest rate hikes in Australia placing increased pressure on all Aussie hip pockets. However, this certainly hasn’t been the case as until October, retail spend in Australia continued to grow, indicating Aussies kept spending despite the increased cost-of-living pressures. The discretionary sector is the second-best performer year-to-date, up 11.66% over the 11-months to December 1. JB Hi-Fi (ASX:JBH) is up 13.63% since January 1, 2023 as investors responded to key strategic moves made by the company including a key focus on reducing inventory levels, restructuring the group’s capital structure to maximise shareholder returns and bolstering the company’s cash position to weather the economic uncertainty. As retail spend has began to slow as per October’s retail sales data from the ABS, we may expect a slight pullback in this sector heading into the new year.

The financials sector has dipped into the red later this year as investors assess increased competition as customer switching between the big banks to get the best rate on offer for both deposDits and loans is on the rise, and net interest margins peaking during FY23 for the big four.

Energy stocks have also been the worst performing sector in 2023 primarily due to fluctuations in the price of oil and geopolitical tensions weighing on key commodity outlooks. The price of oil has been heavily impacted this year by China’s weaker-than-expected recovery post pandemic and key oil producing nations announcing output cuts to boost the price of the commodity amid escalating geopolitical tensions especially in the Middle East. Over the last year, the price of oil is down 3.4% which has weighed on companies including Woodside Energy, Santos and Beach Energy as each of the oil producers’ share prices are down in 2023.

Overall, the outlook for healthcare stocks is positive heading into 2024 as valuations of key companies have fallen throughout 2023 despite strong earnings growth potential, key catalysts heading into the new year for some big names including Telix Pharmaceuticals (ASX:TLX) and the prospect of rate cuts on the horizon proving favourable for margin expansion.

This information is general in nature only and you should consider whether it is appropriate for you. For more information, visit desktopbroker.com.au or call 1300 786 199. Desktop Broker is the trading name of Third Party Platform Pty Ltd ABN 74 121 227 905, AFSL 314341.