Before scouring sectors, remember: Where you are in a market cycle is more crucial than sector or stock picking
. Think broad market conditions first, then get granular. Over all, in bull markets, most stocks rise, while in a bear market most fall. Yet too few consider this basic truth. We are in a young global bull market now, so this is a great time to own stocks.
Other bear market laggards have led the new bull market, too – including tech-like segments of the communication services and consumer discretionary sectors, and industrials, which was pounded by 2022′s interminable global recession fretting. Today’s fundamentals – particularly torpid global growth – favour growth-oriented sectors., in weak expansions investors bid up true growth firms – those that are not reliant on frenetic activity to increase earnings.
In communication services, stodgy old telecom is likely to underperform. Instead, favour big, tech-tied interactive media and services industry firms, which hold huge growth opportunities. They averaged 14-per-cent revenue growth in 2022 despite overall global weakness, and booked gross profit margins of 62 per cent. The TSX has no players in this sector; America dominates the industry.
So where does that leave the TSX’s big financial and energy firms? Financials should be middle of the pack. Rate hikes that stoked interest-rate spreads – and lending profits – are slowing, a key headwind. Don’t avoid them, but don’t load up, either.
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