One Sector to Outperform
Don’t look now, but it’s getting harder and harder to beat the stock market this year.
That’s no surprise to those investors who were whipsawed by the sharp fourth-quarter decline in 2018, which was followed by an equally sharp rally in the first three months of 2019.
So now what?
After the up-and-down volatility, stocks now appear to be stalling, which matches the stall speed of our economy. Both professional and individual investors are finding it difficult to find alpha, that is, to beat the market in this turbulent climate. Most stocks are taking it on the chin in unison: growth, value, small and large. They’re all falling together.
In the recent past, whenever the stock market suffered an across-the-board correction like this, high-quality stocks consistently outperformed the market going forward, and by a very large margin. (More on this below.)
How low are stocks likely to go? Previously in Wealth Watch, I pointed out how renewed trade tensions are starting to drag down the U.S. economy. Trade, manufacturing output and gross domestic product (GDP) growth are all trending lower.
As you can clearly see above, the pace of U.S. GDP growth has already been falling at a fast clip since mid-2018 as the trade war heated up. And the Atlanta Fed’s GDPNow forecast for growth this quarter is well below what Wall Street economists expect.
If the actual number comes even close to this low of a reading, it will certainly be another negative surprise for markets…
That’s why it would not surprise me to see a deeper stock market correction, on the order of 6–8% from the recent highs.
Keeping things in perspective, realize this still isn’t much of a pullback in prices. Remember the strong gains earlier this year, with the S&P up 17% through the end of April.
So where is the best place to hide out in the meantime?
As stated above, high-quality stocks typically outperform in this market environment. And it doesn’t get much higher in quality than large-cap U.S. health care stocks.
In fact, 61% of companies in the S&P 500 Health Care sector beat analyst estimates for both sales and earnings last quarter. That’s the best among all 11 market sectors and well ahead of the average 41% beat rate for S&P 500 companies overall.
So if you’re looking for a high-quality sector to weather this market squall, look no further than health care.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch