At this time, the market continues to be extremely defensive in its choice of sectors to invest in. Based on earnings uncertainty and chaotic international events, the favorite areas are those that have no exposure to Asia or any emerging market, or stand to gain from events overseas, such as a strengthening dollar, as well as strong consumer demand and spending here at home.
This has led to the point where the top rated Select Funds are now as follows:
Retailing (cheap overseas manufacturing plus strong domestic demand)
Food & Agriculture (falling commodity prices lowering cost of materials and increasing profit margins)
Consumer Industries (blue chip personal necessity items plus overlap with previous two sectors)
Automotive (stronger domestic sales vs. increasingly pricey imported vehicles plus low gas costs)
Financial Sectors (looking better based on falling interest rates but not yet developing strong enough upward momentum)
Utilities (domestic orientation plus high dividends which look better as interest rates fall)
Health Care (shaky due to specific drug related concerns but a proven winner during an economic slowdown due to necessity and increasing use of products)
Of course, even the best of these funds has produced limited profits, or even small losses, over the past ten weeks as the overall market has reached a point of consolidation. One can, therefore, choose to sit on the sidelines without feeling guilty, since the profits to be made are, in many cases, too small to bother with. Nevertheless, the cautious attitude is solidly in place, and with the earnings season ahead, small bounces in areas such as technology should be ignored until the figures themselves produce a justifiable and prolonged commitment by investors back into these beaten down areas of the market.
Keep an eye on the relationship between the big economic picture and how it relates to the market's favorite sectors at this time. This should help you clearly see where money is most likely to go, and which areas are too risky under the current circumstances.
Bernie Kaplan
The Sector Fund Strategist
www.sectorfunds.com
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