Welcome to my latest video presentation. The article below is a condensed transcript. For additional details and several charts, watch my video.

To glean a strategic view of the markets, coupled with specific trading advice, I interviewed my colleague Robert Rapier, chief investment strategist of Utility Forecaster, Rapier’s Income Accelerator, and Income Forecaster.

Robert Rapier isn’t just an investment expert; he’s also a polymath. He has degrees in engineering, chemical engineering, and mathematics. When he speaks, investors should listen. Our discussion emphasized the utilities and energy sectors, his specialties. My questions are in bold.

The Israel-Hamas war qualifies as a “black swan” and it has helped push crude oil prices higher, due to worries over supply disruptions. The Russia-Ukraine war, and tight supplies caused by OPEC+ production curbs, also have provided a tailwind for crude prices. Where do you see the per-barrel price of oil heading in the next few months?

The concern over the war is that Iran gets involved, and they are a major oil producer. So, that makes the oil markets very nervous. There are several dynamics in play here. We are headed into an election year. Typically, presidents pull out all the stops to bring oil prices down in the lead-up to the election.

However, in this case, President Biden already utilized a tool often used by presidents, tapping the Strategic Petroleum Reserve (SPR) in order to put more supplies on the market to bring the price down. Since the SPR has been significantly depleted, that tool isn’t in the arsenal. And it empowers Russia and Saudi Arabia to disrupt the markets.

If Russia and Saudi Arabia want oil prices to rise above $100 per barrel, which would hurt President Biden as he heads into an election year, they have the power to make that happen. Given their likely preference for a return of Donald Trump to the White House, I expect them to exercise that power. Thus, I think we are highly likely to see oil prices exceed $100/bbl in 2024.

On the positive side, the U.S. will almost certainly set a new oil production record this year, after the COVID-19 pandemic took a big bite out of U.S. production. But it’s not enough to account for growing global demand, and potential cuts from OPEC+.

As we stand on the cusp of 2024, what are some of the most appealing energy investments? Which energy subsectors are poised to outperform?

If my hypothesis is correct, the top performers will be the oil and gas producers. My former employer ConocoPhillips (NYSE: COP) is a long-term favorite of mine, having outperformed most peers over the years.

In the case of falling oil prices, the refiners usually do well because that’s when their margins expand. My favorite in that space over the long haul has been Valero (NYSE: VLO). However, if you want to play it safe while locking in high income, look to a midstream master limited partnership like Enterprise Products Partners (NYSE: EPD). EPD has been a consistent 7% to 8% yielder for many years, in up and down oil markets.

How will renewables fare in the new year? What’s your prognosis for solar, wind, and geothermal? What are the opportunities as well as pitfalls?

Renewables actually got off to a great start this year. But over the summer, some companies in this segment started to warn that higher interest rates were beginning to impact their outlook. That led to a sharp sell-off across the renewable space. Some renewable energy companies have shed more than 50% of their share prices since early summer.

The long-term prognosis for renewables is great, but the short-term will continue to face the headwinds of high interest rates. If you can afford to be patient, you can certainly accumulate renewable companies at a deep discount right now. Just know that you may have to wait a year or more before those investments really start to pay off. I think we will have to see interest rates head lower before investors change sentiment about the short-term prospects for renewables.

Will growth of the electric vehicle (EV) segment stay strong in 2024, or will the bloom come off the rose due to higher interest rates and raw material shortages? Higher rates dampen consumer demand, and the scarcity of such essential materials as cobalt and lithium makes EVs more expensive. Just look at the recent woes of EV maker Tesla (NSDQ: TSLA).

EV growth will also slow, but like with the rest of the renewable space, the long-term prospects are great. I think those material issues will be resolved, but I think Tesla faces some self-inflicted wounds over Elon Musk’s purchase of Twitter. He has gone about alienating those most likely to purchase an EV, while elevating those who would probably never purchase an EV. Not a smart business decision.

In the short term, buyers still don’t have a lot of options. But in the long run, that’s going to bite deeper into Tesla’s market share.

More expensive oil is a boon for energy investors, of course, but it’s inflationary. Renewed fears of inflation have been driving bond yields higher, which tends to hurt income stocks. Utility stocks are getting clobbered by rising yields because they must compete with safer high-yield bonds. Higher interest rates also make debt more expensive for utilities, which are capital intensive. What’s your advice for struggling utility investors?

It’s a shame for investors who get into utilities because they are looking for safe, stable income, only to endure such a big sell-off. I try to tell investors to be prepared because it happens.

In 2008, the utility sector was down 30%. It has happened before, and it will happen again. For those who can’t live with that kind of volatility, I do recommend sticking to something like bonds.

However, for those who can live with the volatility, remember that those cycles end. This one will probably end when we see an interest rate cut. For now, try to stick with companies that have consistent cash flow, and conservative dividend coverage. You may see your share price rise and fall, but your income should be fairly safe.

Do you expect the Federal Reserve to cut its fed funds policy rate in 2024, and if so, approximately when?

Yes, I do. Right now inflation is being driven by higher commodity prices, and these high rates aren’t doing much to impact that. I think as the election cycle heats up, there will be a lot of pressure to cut rates.

I know the Fed is supposed to be independent, but they will feel the political pressure to make cuts. I would be surprised if we make it to Q3 next year without seeing the first cut in this cycle.

When the Fed pivots to a dovish stance in 2024, how will the stock market respond? Which assets will benefit the most?

You will see those income-sensitive stocks that have been battered by rising rates bounce when the Fed pivots. Just look at this year’s worst performers. i.e. defensive stocks like utilities and real estate investment trusts (REITs). Those will be the biggest beneficiaries.

In early 2023, recession fears were rampant. But then, toward the latter part of the year, those fears dissipated amid stronger-than-expected economic growth. The current consensus is that an economic “soft landing” is within reach in 2024. Do you agree with the soft landing scenario, or considering recent geopolitical shocks, is it too optimistic?

On the positive side, the job market remains resilient, consumer spending is holding up well despite inflationary pressures, and corporate balance sheets are still healthy overall. The Fed also seems committed to engineering a soft landing through more measured interest rate hikes going forward. This could extend the economic expansion.

However, there are still significant risks that could derail a soft landing. Persistently high inflation may force the Fed to raise rates higher than ideal, potentially restricting credit availability. Geopolitical tensions threaten energy supplies and raise volatility.

Given all the crosscurrents, I don’t think we can rule out a mild recession, especially looking into 2024. But at the same time, the doom-and-gloom recession predictions from early 2022 haven’t materialized either. The most likely outlook may be continued slow growth with punctuated volatility. Overall, there are credible cases for both soft landing and recession scenarios playing out.

Among the 11 S&P 500 sectors, which ones do you see performing the best during 2024?

It very much depends on what happens with interest rates. If you see the Fed make a cut early in the year, unlikely in my opinion, we could see the utility sector rise to the top. But as things stand today, the energy sector may be poised to climb back on top, after being the top performing sector in both 2021 and 2022.

Which do you think will perform the worst?

I thought technology had gotten ahead of itself earlier this year, and it had a significant pullback in Q3. It is still one of the top-performing sectors of the year, but it is being priced for perfection.

If we do get a recession next year, history shows that the worst performers tend to be technology, industrials, and consumer discretionary.

Thanks for your time.

Editor’s Note: Among the publications that I edit is our premium trading service Utility Forecaster. My colleague Robert Rapier is the chief investment strategist.

Do you seek peace of mind in today’s uncertain investment climate? As you position your portfolio for next year, turn to utilities stocks. These stable, high-dividend stalwarts provide shelter from the storm. Utilities stocks offer growth, income and asset protection. That’s an unbeatable combination.

But you need to pick the right ones. For our list of the highest-quality utilities stocks, click here now.

John Persinos is the editorial director of Investing Daily.

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