Brokerage Industry's 2024 Outlook: Bank of America's 5 Top Stock Picks Revealed

As we approach 2024, the U.S. brokerage industry stands at a critical juncture, eagerly awaiting a shift in fortunes after years of liquidity drainage due to rising interest rates.

The team at Bank of America, headed by Craig Siegenthaler, CFA, forecasts a year marked by crucial transformations, primarily influenced by the projected rate cuts from the Federal Reserve. They predict that these anticipated rate reductions in 2024 and 2025 will lead to notable enhancements throughout the asset management sector.

Bank of America's insights provide a valuable roadmap for traders navigating this evolving landscape, highlighting seven key trends shaping the sector:

1. Duration Extension and Fixed Income Inflows: Both institutional and retail investors are predicted to extend their portfolio durations, leading to unprecedented inflows into fixed income assets. This shift is expected to primarily benefit passive funds, capturing 60-70% of the inflows.
   
2. Alternative Investments on the Rise: The spotlight shines on alternative investments, especially in the private credit and real estate sectors, as they gain momentum in private wealth channels.
   
3. Interest Rate Sensitivity Affecting Brokerages: Brokerage firms sensitive to interest rates may face challenges, with the Federal Reserve’s potential “pause” and rate cuts causing negative revisions to EPS.
   
4. Exchanges Confront Volume Growth Deceleration: A slowdown in volume growth could dampen revenue at exchanges, contrasting the expected growth in tech and information service businesses.
   
5. Increased Defaults and Headline Risks: A rise in defaults may create headline risks, impacting returns for private market managers.
   
6. SEC’s Equity Market Structure Reforms: The SEC is poised to finalize its equity market structure proposals, potentially reshaping the landscape to benefit retail brokers and market makers.
   
7. Diverse Impact of Interest Rate Shifts: Lower interest rates could positively influence private equity and real estate, while private credit and infrastructure might face challenges.

Brokers, Wealth Managers And Exchanges: 5 Top Stock Picks From Bank of America

Blue Owl Capital Inc. (NYSE:OWL): Recognized for its fast growth, Blue Owl is a top pick with a $17 price target, suggesting a 26.3% upside.

KKR & Co. Inc (NYSE:KKR): With its S&P 500 inclusion and fundraising acceleration, KKR receives a buy rating.

Tradeweb Inc. (NASDAQ:TW): As a leading fixed-income e-trading platform, Tradeweb shows strong growth potential, boosted by the shift to electronic trading.

AllianceBernstein Holdings (NYSE:AB): Ideal for bond reallocation, AB is tagged with a Buy rating and a $40 price target, indicating a 39.4% upside.

Intercontinental Exchange (NYSE:ICE): Projected for a revenue rebound in fixed income and mortgage technology, ICE is rated a Buy with a $136 price target, representing a 20% upside.

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