Here are the best sectors and strategies to navigate the market as the Federal Reserve cuts interest rates, according to CFRA Research’s Sam Stovall.
Transcript:
CAROLINE WOODS:So what is the investing playbook now that the Fed is in rate cutting mode.
SAM STOVALL: Well, history would tell us that in a second year of a rate cutting mode, the market continues to do quite well. We find that all sizes, all styles, all sectors except utilities have posted average increases led by financials and information technology, with utilities being the only decliner on average. And of the 75 industries that have been around for at least three rate cycles since 1990, we find that 84% of them posted gains in that second year. So basically, second year of cuts with us not falling into recession tends to point to higher prices ahead.
CAROLINE WOODS: So if you take a look at the best performing sectors. So far this year, it’s things like tech industrials, financials. So basically more of the same Sam. Or should investors be making some changes to their portfolios right now?
SAM STOVALL: I don’t really think they should be making a lot of changes. Studies actually have shown that you’re better off letting your winners ride, rather than trying to pick the bottom, because they have an awful lot of overhead resistance that they have to work through before they can do quite well. We’ve seen some rumblings of action in health care and in materials, but on a cap weighted basis and over a longer time frame, they’re still just bouncing along the relative strength bottom. So I would say monitor health care. You can make some selected picks. Our Lowry technical Analysis Group highlighted Merck as well as Medtronic’s just a couple of days ago, indicating that they are making some positive moves, but they themselves don’t represent the entire sector.
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