Your best long term strategic investment plan is to balance your portfolio across the five main sectors of the economy: finance, utilities, consumer products and services, manufacturing and resources. Each of these broad sectors is made up of sub-sectors that often have different market outlooks.
When you buy stocks in sectors and sub-sectors of the market, keep your goals in mind. If you’re a conservative, income-seeking investor, focus on utilities, financial and consumer stocks. If you’re aggressive, buy more manufacturing and resource stocks.
As a general rule, we advise you to keep at least 10 per cent—but no more than 30 per cent—in each of the five main economic sectors. Remember, too, that within any given sector or sub-sector, individual stocks will perform differently from one another.
Here’s our market outlook for the next six to twelve months for the five main sectors and their sub-sectors. Our long-run outlooks can differ from our short-run outlooks.
We still expect banks to match the market. Worries exist about lower interest rates. We think these worries are overdone. We still expect mutual funds to lag due to the market setback. We still expect insurers to match. Lower interest rates raise liabilities, but they’re growing abroad.
We still expect gas and electricity utilities to outperform, as interest rates are low and they pay high and rising dividends. We still expect pipelines to match. They face opposition but are earning and paying more. We now expect telephone stocks to outperform. They’re earning and paying more.
We still expect building materials stocks to outperform as low interest rates support U.S. and Canadian construction. We still expect chemical stocks to lag due to modest demand. We now expect fabricating stocks to outperform as building construction continues.
We still expect engineering stocks to outperform. Infrastructure spending is rising. We now expect steel-related stocks to lag due to lower prices amid rising imports.
We still expect tech to outperform as firms invest to cut costs. We still expect transportation stocks to outperform. A growing U.S. economy requires shipments.
Expectations going forward
We still expect traditional communications stocks to underperform, except for those that serve online advertisers. We now expect food, beverage and tobacco stocks to outperform as investors seek dividends, gains, and safety in consumer staples. We still expect Canada’s drugstores and small health care stocks to underperform, due to lower drug prices and generic competition. We still expect surviving merchandisers to match as competitors fail.
We now expect gold stocks to outperform as investors’ fears drive up the price of gold. We now expect oil and gas stocks to match as production and investment decline and prices stabilize.
Mining stocks not bottomless
We still expect mining stocks to underperform as China’s economy slows, despite growth in the U.S. and British economies. We still expect forestry stocks to outperform. That’s particularly true for lumber producers that supply American construction companies.
The MoneyLetter, MPL Communications Inc. 133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846