November CPI has come in slightly hotter than expected while investors wait to hear from Fed Chair Jerome Powell on the direction of interest rates on Wednesday.

eToro U.S. Investment Analyst Callie Cox joins Yahoo Finance Live to weigh in on the impact this week's Fed decision will have on investors' choices in 2024.

Cox notes the “balance of risks” that Chair Powell has spoken about recently, paying attention to his wording when considering the Federal Reserve's stance on inflation and the US labor market. Cox encourages investors to "prepare or stay nimble" while riding out recession calls, but urges them to not "sit this market out."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

- What would that flexibility look like from the Fed's perspective?

CALLIE COX: Well, Powell has said this for the past few meetings but he's talked about the balance of risks in the economy. That's the phrase that I'm paying attention to. And when he says that, he's referring to the dual mandate of promoting healthy employment while controlling inflation.

Think of it like a balance beam. He sees inflation coming back into balance, and he does see weaker risks on the job market side of the economy. So the balance of risks, really, is the wording that I'm looking for. And I don't think he'll abandon that, really, because we're still seeing that in data. We're still seeing inflation come down, we're still seeing a decent but weakening job market. Those trends haven't changed.

- So Callie, what does this mean for investors out there trying to figure out their playbook here as they look ahead to 2024? Is there still reason to be optimistic and reason for investors to take some risk at this point?

CALLIE COX: We think so. I mean, November showed you that a lot of investors were caught off guard by the fact that the economy is still resilient and inflation is still coming down at an impressive rate. So if you're an investor looking into 2024, I'd first of all pat yourself on the back because we've made it this far. And a soft landing is still in play.

Prepare or stay nimble because a recession is still on the table. Look at quality risk, look at those companies that can survive a recession. But don't sit this market out. It's a bull market until proven otherwise.

- And so within that, it's still going to be largely hinging on the Fed going into next year and the number of rate cuts that we could potentially see. Where are the hot spots that you believe investors could or should be looking at in next year?

CALLIE COX: Well, we think it could be smart for investors to start rotating into cyclicals. Of course, we're not there yet. Still fearing a recession. Quality risk is still the name of the game these days. But as we saw yesterday, I mean, we are seeing breadth widen out in this rally for a good reason. There is more of a hope for a soft landing. And the fact that even if we do hit a mild recession, that the market has already past it.

So those parts of the market that got hammered in 2023, the banks, small caps are two that come to mind. You really think about slowly tiptoeing back into those because we think the opportunities in both of those sectors could be coming soon.