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 stocks and consumer goods stocks. If you’re aggressive, buy more resource and manufacturing 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 outlook for the next six to 12 months for the five main sectors and their sub-sectors.
We still expect the banks to match the market. Growth in fields such as wealth management can offset little growth in other fields. We still expect mutual funds to beat the market as rising stocks attract investors. We still expect insurers to beat the market thanks to higher investment gains.
We still expect gas and electricity utilities to lag the market as they’re vulnerable to rising interest rates and the industry changes. We still expect pipelines to lag as they face opposition. We still expect telephone stocks to lag. They may face competition from Quebecor Inc. and wireless growth is slowing.
We still expect building materials stocks to match the market as growth in U.S. housing overcomes weakness in Canada. We now expect chemical stocks to match as they sell higher quantities and prices recover. We still expect fabricating stocks to match. Fairly low interest rates lead to building construction. We still expect engineering stocks to match infrastructure as it is renewed. We still expect steel-related stocks to match amid higher auto sales and construction. We still expect tech stocks to outperform as companies invest to cut costs. We still expect transportation stocks to beat the market. A growing economy requires higher shipments of goods.
We still expect communications stocks to lag, unless they serve online advertisers. We now expect food, beverage and tobacco stocks to lag the market. Food retailers face ferocious competition and weak sales. We now expect Canada’s drugstores and small health care stocks to lag the market as they adjust to lower drug prices and more competition. We still expect merchandisers to lag as more foreign competitors set up shop or expand in Canada.
We still expect gold stocks to match the market as gold prices stabilize and producers cut costs. We now expect oil and gas stocks to beat the market. Prices are up in North America and so are rail shipments. We now expect miners to match the market as commodity prices and volumes recover. We still expect forestry stocks to match the market. Particularly lumber producers that export to the U.S., where residential construction has revived.