Sectors of the Month – December
Going into December, we recognize that the current state of the market is one of the more difficult ones we’ve seen in a while for managing risk. Some areas of the economy continue to perform well, but enough macroeconomic data has been soft and the potential for changes in fed policy have the potential to cause a lot of downside risk during a time of year when the stock market tends to perform well. So, we are in the market but with a cautious eye to exit quickly if price deteriorates.
The three key sectors we’re focusing on this month are Technology, Industrials, and Insurance.
This is the area that looks the strongest to us right now. Whether it’s Internet, Semiconductors, Software, or Hardware – every area of the Technology space has been among the best performers over the last 3 months. We’re investing in XLK, which is a broad representation of the Technology sector. Technology has become so integral to our everyday lives and each year contributes to so much of the growth of our economy, we believe these are the companies people will more likely want to own regardless of the state of the economy.
Many of the larger holdings in the Industrials sector are in Manufacturing, Defense/Areospace, and Transportation. In particular, we think that conditions could favor the Defense and Transportation elements of this sector. The strong dollar and weak oil prices tend to bolster airlines because the strong dollar makes it more affordable for American to travel internationally and the low fuel costs helps improve the profit margins of the airlines. The increasing conflict in the Middle East and other parts of the world makes it likely that companies in the Defense sector will see increases in demand over the foreseeable future.
Going into December we like the Insurance sector because of the potential for rising interest rates and rising insurance premiums. Rising premiums will increase the amount of money coming in, and the possibility of increasing interest rates could increase the amount they are able to earn on those new funds that come in.
The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.