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Ahead of a year of big unknowns, here are two sectors investors should consider, says this money manager

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After stocks surged to their best gains in three weeks following strong consumer sentiment data, Thursday is looking less spirited with equity futures in the red as we close in on the long Christmas weekend.

Investors should be accustomed to that here-today-gone-tomorrow kind of trading action they’ve endured this year, as the better sessions seem outweighed by the not-so-great ones. That is reflected in the 18% drop we’ve seen for the S&P 500
SPX,
+1.49%
so far in 2022, and Wall Street strategists tearing up their maps forward again and again.

Read: Wall Street’s stock-market forecasts for 2022 were off by the widest margin since 2008: Will next year be any different?

For all the grinding lower of this market, it’s still not that cheap, as Michael O’Rourke, chief strategist at JonesTrading, reminds us. He notes that the S&P 500
SPX,
+1.49%
market cap to GDP has shrunk to 129% from 180% almost a year ago, thanks to the tech-led pullback.

“That is a notable correction, but it is also a 6.7% premium to the 2000 bubble and a 50% premium to the three decades average,” said the strategist who suggests investors keep watching this to gauge the priciness of this market.


JonesTrading/Bloomberg

So investors are headed into 2023 with valuations having corrected, but not a supercheap market. In short, risk appetite remains poor, and “managers are looking to weather the storm rather than take advantage of real potential alpha,” notes Mark Ritchie II, chief investment officer of RTM Capital Advisors and a son of the legendary investor by the same name.

But for those investors who aren’t afraid to at least look at where the extra gains in this market may come from, Ritchie offers up a couple of sectors and investment ideas to watch in our call of the day, from an interview he gave to Real Vision earlier this week.

The first is solar, a small, niche part of the market that he notes has been holding up well in line with energy prices. “If you look at the leading names in that group, there’s a few that have real earnings and sales, those could continue to be explosive,” said Richie.

He’s also keeping a close eye on biotechs, though notes it’s more stock selective as some parts of the sector are not trading great. “But there are some specific stocks that are trading very well. I think you want to be looking there potentially,” he said.

While these two areas hold risk, Ritchie said he would be dipping into them again should they keep holding up relative to the market. “And if you look specifically at the biotechs that are acting well, they all bottomed,” he said.

On that, he says rather than pick up ETFs, such as the SPDR S&P Biotech ETF
XBI,
+2.23%,
investors should look at companies in the larger cap that have held up well —Biogen
BIIB,
-0.23%,
Regeneron
REGN,
+0.36%,
Gilead
GILD,
+0.59%
and Eli Lilly
LLY,
+2.33%,
to name a few.

“But I would just say, look at one of the biotechs that have the highest relative strength, meaning relative to the overall market, or one of the ones that are potentially hitting or trading near 52-week highs,” said Ritchie.

In the solar group, First Solar
FSLR,
+3.49%
and Enphase
ENPH,
+4.98%
are two companies he notes have also been holding up well.

The markets

MarketWatch

Stock futures
ES00,
-0.15%
 
YM00,
-0.19%
 
NQ00,
-0.16%
are dropping, as bond yields
TMUBMUSD10Y,
3.647%
 
TMUBMUSD02Y,
4.205%
edge lower, with the dollar
DXY,
-0.00%
stead. Oil prices
CL.1,
+1.88%
 
BRN00,
+1.85%
are up 1.8%. The Hang Seng
HSI,
+2.71%
charged higher, taking a cue from Wall Street’s positive session.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

Weekly jobless claims and third-quarter gross domestic product are on tap for release at 8:30 a.m. Eastern, following by leading indicators at 10 a.m.

Shares of Lexicon Pharmaceuticals
LXRX,
-1.04%
are tumbling after a disappointing Phase 2 study of treatment for shingles complication.

Micron Technology shares
MU,
+1.01%
are down after the memory chip maker announced plans to cut jobs and expenses after reporting a loss and weak demand.

Two former FTX and Alameda Research executives pleaded guilty to fraud late Wednesday, the same day that FTX co-founder and former CEO Sam Bankman-Fried was being extradited back to the U.S. to face charges.

Delta
DAL,
+2.34%,
American
AAL,
+3.99%,
United
UAL,
+1.17%
and other airlines continue to cancel flights as a “bomb cyclone” winter storm wreaks havoc across the U.S.

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The chart

The chart of the day comes from Jesse Felder, founder of Felder Investment Research and blogger at The Felder Report, who explores whether a “larger regime change is underway” as the 60/40 portfolio has taken it on the chin this year.

A 30-year history of the Sprott Physical Gold and Silver Trust
CEF,
+0.06%
to the Vanguard Balanced Index Fund
VBINX,
+0.97%,
“shows there are times to own precious metals and then there are times to own stocks and bonds,” Felder writes.


The Felder Report

He said the ratio is back above its 36-month average as well as breaking out of a decadelong downtrend. “If this is, indeed, indicative of another major regime change then we should expect precious metals to outperform stocks and bonds for an extended period of time, perhaps for the next decade or so,” said Felder.

The tickers

These were the top-searched tickers on MarketWatcha as of 6 a.m. Eastern:

Ticker

Security name

TSLA,
-0.17%
Tesla

GME,
+1.48%
GameStop

AMC,
+4.33%
AMC Entertainment Holdings

MULN,
-1.46%
Mullen Automotive

NIO,
+4.69%
NIO

AAPL,
+2.38%
Apple

AMZN,
+1.85%
Amazon.com

APE,
+1.59%
AMC Entertainment Holdings preferred shares

DWAC,
+9.79%
Digital World Acquisition

COSM,
-8.45%
Cosmos Health

Random reads

California dog missing for more than a year headed home for Christmas after turning up alive and well in Kansas.

Rock band Journey feuding over performances for former U.S. President Donald Trump.

It’s time for Spain’s annual “El Gordo” lottery draw with $2.7 billion up for grabs

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

Credit: marketwatch.com

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