This week’s recent volatility put technology exposure in focus as tech led the markets lower after all indexes set new all time highs. Now don’t get me wrong, this created an excellent opportunity to add some of your favorite tech names at a significant discount and I believe long-term, tech will continue to drive future growth. But over the next 3-6 months I’ll be looking elsewhere to find my clients a better risk-adjusted return.
Let me provide some perspective on why I’m making this decision. While technology is one of the rare beneficiaries of Covid, in my opinion, it simply sped up the adaptation of technology that was going to eventually take over. And while there are plenty of names that still have room to run, I’m now more comfortable looking outside of technology for growth based on valuations.
Previously I’ve mentioned in my Facebook live videos that certain areas of the market simply won’t recover until a vaccine is approved and we have a chance, keyword chance, at experiencing a full economy 12-18 months following. Some of those companies and sectors were actually positive while tech and the rest of the market were plummeting. So where will we be putting our money?
Two of the three sectors I’m closely monitoring companies in are Materials and Industrials. Some in each are clearly companies that need a full economy but there are others that offer products that have thrived alongside technology stocks and have the potential to see accelerated growth after a vaccine is approved.
The final sector that has shown more recent resilience is financials. There have been obvious concerns about financials considering the state of the economy but despite those concerns, financial firms, banks specifically, are much more well positioned to handle the defaults that we will continue to see.
Now don’t go running to put your money to work in these areas right away. We are 8 weeks away from an election and historically September and October are negative months for the market during elections years. The volatility we will continue to see over the next two months will provide opportunities to slowly rebalance portfolios with a higher weighting in these three sectors. However don’t wait too long either because historically after November 4th, regardless of who is elected, we’ve typically seen growth for the remainder of the year.
If you’re curious what companies we’re monitoring be sure to like and follow our Facebook page. In our Facebook live videos I’ll be discussing the companies we’re watching, what we’re looking for, and other market news you’ll want to hear.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.