(Bloomberg) -- Australian stocks are heading into 2024 near an all-time high amid hopes that interest rates have peaked.

The benchmark S&P/ASX 200 Index is wrapping up the year less than 2% away from its record close in August 2021 after the Federal Reserve’s policy pivot this month boosted its year-to-date gain to 7.1%. Technology shares led the advance on the hype around artificial intelligence and bets that rate cuts will support growth stocks, while energy stocks languished on dwindling commodity prices.

Still, the domestic outlook is clouded. While Australia’s labor market has remained strong amid the Reserve Bank’s tightening cycle, the economy surprisingly slowed sharply in the three months to September. Economists expect the RBA to remain hawkish at least during the first half of 2024 with a shallow easing cycle predicted for later in the year.

“We think it’s going to be a grind,” said Dion Hershan, head of Australian equities at Yarra Capital Management, on the path for local stocks next year. 

Here’s a look at some notable moves in 2023 (year-to-date share moves shown in brackets):

Tech Stocks

A measure of local tech stocks was the year’s biggest winner, significantly outpacing other sectors with a 29% surge. It soared with global peers as the fervor around AI continued to grow since ChatGPT’s release last year, and as central banks started signaling that they are done increasing interest rates.

Next year, “the favorable setup for global tech will play through to the Australia market, given the shares exhibit the same characteristics of high-quality growth,” said Anna Milne, an analyst at Wilson Asset Management. “Valuations will benefit from the downward shift in monetary policy settings.”

Megaport Ltd. (+52%), NextDC Ltd. (+50%), Xero Ltd. (+59%)

Lithium, Iron Ore Volatility

A flurry of deals in the local lithium industry has rocked related shares over the past few months. The battery metal’s role in the energy transition and optimism over long-term demand has prompted producers and investors to bet on new supply sources, sending acquisition targets like Azure Minerals Ltd. soaring more than 1,500% this year.

Even so, falling spot lithium prices coupled with analyst downgrades have sent some stocks plunging. Core Lithium Ltd. and Sayona Mining Ltd. were some of 2023’s worst performers on the benchmark.

While the appetite for lithium is expected to grow, prices are headed for further declines as supply outstrips demand, according to Dim Ariyasinghe, an analyst at UBS Group AG. “In a market in its infancy and growing, you are going to get these periods of dislocation.”

Read: Hedge Fund Hunts for Next Australia Lithium Winner on Deal Craze

Iron ore miners also had a bumpy year amid mixed signals from China’s government over what it will do to shore up economic growth.

Core Lithium (-66%), IGO Ltd. (-32%), Liontown Resources Ltd. (+27%), Azure Minerals (+1,562%), BHP Group Ltd. (+9.1%), Rio Tinto Ltd. (+15%)

Financials Diverge

Insurers outpaced lenders this year as bank chiefs warned of slowing credit growth and cautioned over future earnings.

“Australian banks’ profit could fall faster and further than Asian peers’ earnings in 2024 as margins shrink,” Bloomberg Intelligence analysts led by Matt Ingram wrote in a note. “Normalizing credit costs will further crimp profit.”

Meanwhile, insurers’ fiscal 2024 dividend payouts and earnings may see further upside due to excess capital, sound reserving and substantial fixed-income investments, according to Ingram.

Commonwealth Bank of Australia (+8.2%), Westpac Banking Corp. (-2%), Insurance Australia Group Ltd. (+20%), Suncorp Group Ltd. (+15%)

Energy Shares Lag 

Energy shares were the benchmark’s biggest laggards as supply concerns and geopolitical issues rattled oil prices.

While 2023 proved to be a tumultuous year for the sector globally, Australian energy stocks underperformed regional peers as heavyweights Woodside Energy Group Ltd. and Santos Ltd. declined for most of the year on company-specific issues. Still, news that the two firms are eyeing a merger sent Santos shares surging this month.

Oil and gas shares may see support over the medium term, according to Yarra’s Hershan. Industry underinvestment, reasonably robust demand and a global effort to pivot away from coal have made some stocks look attractive, he said.

Woodside (-12%), Santos (+6.6%)

Uranium Bulls

Some investors are ratcheting up their exposure to uranium stocks, betting on significant price gains.

Read: Hedge Funds Pile Into Uranium Stocks Set for ‘Dramatic’ Rise

“Uranium is a sector to watch next year and there are still good reasons to be bullish from here,” said Matt Griffin, a fund manager at Maple-Brown Abbott Ltd. in Sydney. “There is a growing acceptance that meeting decarbonization goals will be extremely difficult without nuclear as a larger part of the mix.”

Griffin said he likes Sydney-listed Boss Energy Ltd., among the top performers for 2023, and Paladin Energy Ltd.

Paladin Energy (+39%), Boss Energy (+94%)

--With assistance from Swati Pandey.

©2023 Bloomberg L.P.