Several key things have been in play for months and I believe they will continue to be the leaders in this environment. We'll update a few familiar charts, but also make sure to highlight the themes that will be the beneficiaries of the same sector rotation model we've based our analysis on for several years.
Let's dive in.
In my estimation we are now in the left middle 1/3 of this graph in that we have witnessed this crazy 4 year rally in stock markets, but just to throw a wrinkle at you, we have kind of limped along in the economic recovery marked with massive repression of interest rates causing some delayed impact within the normal rotation.
My thought is still that Technology, Industrials, Basic Industry, and even Energy are the key winners now and in the short to medium term. However because of distortions related to interest rates, finance too will benefit from net interest margin spread growth, and they should continue to benefit. (I'll hedge my bets here and suggest that regional banks and insurance companies will win, while large money center banks may lose as they are heavily dependent on mortgage activity for some of the success.)
I'll just post the charts with little comment.
Emerging markets seemed to have bottomed relative to the SPX and may be the area to watch in terms of "better than" performance.
We've had a correction and despite all of the crazy geo-political issues, there are simply strong looking charts and reasons to watch for a good bounce. Technology, Financials (especially regionals), Industrials, and yes, even cyclicals and emerging markets are the place to invest. Many of the charts are at support so further weakness would take a prudent investor out of their positions. This is a good time to re-evaluate all positions, commit to firm stops, or widen them out if you are willing to handle a bit more volatility to ensure you maintain positions.
WILD CARDS AND GEOPOLITICS
The wild card in the context of investing right now is determining a winning strategy in the midst of amateur hour at the White House. The President is way over his head in the foreign policy arena and his adversaries (foreign and domestic political and national rivals) are circling like sharks. His mis-steps related to Syria are serious and his weakness here has emboldened challenges from Assad, Iran, Russia, and China. The correct thing to do for the President now is to simply state we don't know who used chemical weapons and then suggest that we'll wait for more evidence. Meanwhile he should continue to arm and support the terrorist rebels and engage Assad to the point in which they begin to win. At that time, our strategy should be to withdraw arms and support till they are weakened. This approach assures no winner arises and continues to draw the evil black eyes of Iran, China, and Russia to this little spot of dirt in the Middle East.
Our President must learn that there is no winning in winning and there is no losing if you support and are friends with the meanest and worst strong man as long as he wins and you are committed to giving him indefinite monetary support forever (where are you Mubarak, Obama didn't mean it!). We've had our Utopian experiments by both Bushes and President Obama. Clearly the people in this region do not have the same value system and cannot appreciate the same type of democratic approach our country actually used a long time ago. In addition, we cannot pick winners and losers in the region as most of the time the new guy is a lot worse than the old guy.
My point here is simply that Obama probably won't take my sage advice and I'm sure his arrogance will be more of a guide in his approach to use a "sterile" volley of tomahawk missiles to soothe his wounded pride. An attack will result in increased oil and gas prices, refiner losses, gold and silver gains, and an uncontrollable situation. Keep an eye on it!
Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.com/