The resurgent US stock market has hit all-time highs this year. However, not everyone’s portfolio has followed suit. Here we’ll look at which sectors are performing well and which stocks have good potential.
So far, May has been a tough month for some of the pandemics’ biggest winners. The NASDAQ 100 Technology Sector Index’s steady climb has taken a hit due to concerns over rising inflation rates. Apple, Alphabet, and Intel have all dropped this month following comments by US Treasury secretary Janet Yellen.
Yellen has suggested that bubbling inflation means that interest rates might need to rise to prevent ‘overheating’ in the economy.
In addition, Lina Khan’s appointment to the Federal Trade Commission could be problematic for some of the bigger tech giants. Khan, a tech critic, has an antitrust plan that could see the regulator target Amazon, Google, and Facebook.
Rising Inflation Rates
Indeed, rising inflation rates pose a problem for investors. Annual consumer price inflation was up 4.2% last week. While there are several factors at play here, expansionist monetary and fiscal policy is chief amongst them.
For many, the Fed’s readiness to keep interest rates low has been a significant factor in the US markets’ vast gains over the recent year. Higher interest rates reduced the risk appetite, which could result in an overall market decline.
However, if growth stocks are taking a hit, it may be because other sectors are looking suitable to investors. The big question is that if tech stocks have reached the top, which other sectors are worth considering?
Sector rotation is the process of moving investment from one industry to another. The theory is that the economy works in cycles, and specific sectors perform better depending on which cycle we are in.
Recently we have been in a bull market. However, throughout May, many sectors are feeling the pressure. Tech stocks have dropped, and the Energy and Housing sectors have declined.
What Should Investors Do?
Considering the above, investors have a few options.
#1. Tech stock profit-taking
With the lifting of stay-at-home orders, consumers will be out and about spending money. It could be time to cash in on tech stock gains from the last year.
#2. Value stocks and Rebounding Industries
Now might be the right time to invest in value stocks. Additionally, resurgent industries like retail, construction, finance, and transport could be ready to bounce back.
#3. Energy is Looking Interesting
Despite concerns about problems in the Middle East, the energy sector could offer some growth as the global economy begins to power up.
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Alpesh Patel OBE