3 Best Sectors for an Economic Recovery
by Houghton and Atkeson 06/22/09
Free Trading Guides
Recovery Beneficiary #1: Consumer Discretionary
Consumer discretionary stocks are by far the strongest measured by relative strength.
All of the top five strongest sectors in the S&P 500 (SPX) are consumer discretionary sub-industry groups.
In order, they are:
1. Tires and Rubber
2. Auto Dealers
3. Restaurants
4. Casual Dining -- micro cap
5. Men's Apparel Retailers
6. Book Stores -- this does not include Amazon.com (AMZN)
What the price of stocks rolled up into industry groups is saying is that the hardest hit consumer areas will be some of the first areas to recover, and have the potential to rebound with higher absolute and percentage gains than other sectors.
Automobiles (dealers and parts) may show a tremendous bounce as the existing dealer base is reduced, GM, Chrysler and Ford (F) focus on selling fewer but better cars, and Congress potentially enacts short-term stimulus legislation directed specifically at the car industry (e.g., a cash-for-clunkers law much like what has already been enacted in many European countries).
After running these strong consumer discretionary groups through both technical and fundamental screens, the stocks that stood out as most attractive now are:
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Looking into June, the market should begin refocusing on upcoming earnings reports for evidence the economy is gaining momentum.
Watching the Treasury's Actions
In the short-term, the government's bond auction is likely to be a key driver of stocks.
Treasury Auction Boosts Market
The Treasury's auction of two-year notes brought an upside surprise which should alleviate fears of a lack of demand for U.S. paper.
Credit Markets Point to Upturn
The credit market, a reliable indicator of equity direction, suggests we will break out of the SPX's trading range to the upside.
The market seems to be saying that a 30% move up from the lows is ahead of the real economy and the market needs to allow the economy to catch up.
