Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Stock Market Sector Rotation Portfolio Strategies

Stock-Markets / Sector Analysis Jul 23, 2009 - 01:10 AM GMT

By: Hans_Wagner

Stock-Markets

Best Financial Markets Analysis ArticleAligning your portfolio with the next industries to lead the economy and bear the market is basic to a sector rotation strategy. The current recession is causing some significant changes to the underlying economy that will affect investors. Surprisingly, companies that benefit from their export business are seeing their opportunities expand. There are some fundamental reasons for this change that will help them sustain their export growth. Exports will be the leading reasons for the growth the U.S. Gross Domestic Product (GDP) for several years to come. Look to align your portfolio with the sectors that benefit from exports.


The wealth of economic data that is available can overwhelm investors trying to identify the important facets of the current economy. Fortunately, the St. Louis Federal Reserve Bank through its Economic Data Fred® database provides a wealth of data in easy to read charts that are useful to explain important economic issues.

One of the biggest changes we are seeing in the U.S. economy is the massive deleveraging that is contributing to declining consumer spending. After living beyond their means by using the asset appreciation of their homes to fund a life style that was unsustainable, the average consumer in the U.S. has cut back. Those within 15 years of retirement are panicked they will not have enough saved to live comfortable after they turn 65, as they have seen their retirement accounts cut in half. Those in the 25 to 50 age brackets are realizing that they are responsible for their financial future. They have seen what happened to their parent’s investments, as well as their own and it scares them. As a result, almost everyone is saving more as shown in the chart below. When consumers save more, they spend less. Less spending, means fewer goods and services being bought, lowering the growth of the economy. Longer term, this is good, as the higher savings rates will create more capital for investment. It could even help to offset some of the massive borrowing by the federal government.

Not surprisingly, with lower spending many companies are experience a rapid drop in sales. When sales fall, their supply chains need to readjust to reflect the falling level of sales. This tends to cause inventories to rise. The sales to inventory ratio is an excellent indictor of the level of sales compared to goods available for sale.

The downtrend in inventory to sales since the early 1990’s is a reflection of the vast improvements made in aligning the supply chain with end sales. Instead of buying goods on the hope they will sell, now when a sale takes place an order is transmitted immediately back through the supply chain to initiate the production and distribution of another item. By lowering the amount of inventory in the supply chain, the cost of goods falls, benefiting everyone in the supply chain.

With the “new normal” as coined by Mohammed El Erian at Pimco, the lower level of spending per person will cause repercussions throughout the supply chain. The U.S. will need fewer stores, distribution centers, shipments, etc to supply the same number of people. Everyone in the supply chain will have to adjust a lower level of sales per person.

Not surprisingly, capacity utilization is showing the U.S. is using less than 70% of its available productive capacity, the lowest level since 1965 when this data series began. The U.S. has a lot of spare capacity available. Since consumers are not likely to start to return to their former spending levels, some of this capacity will not return. The permanent closing of factories, distribution centers, and retail stores is part of the underlying change in the economy to bring it back into alignment with a new normal level of consumption. This transition is and will continue to be painful. Longer term it will benefit everyone as the marginal facilities are removed from the economy. The ones remaining will contribute to higher level of productivity, making the goods and services produced in the U.S. more competitive worldwide.

That last comment leads me to where the U.S. is already becoming more competitive and the place where investors can find the best opportunities. As shown in the chart below of Real Net Exports of Goods and Services, the U.S. is experiencing a resurgence in exports, or at least exports are falling proportionaly less than imports. The improvement in the country’s trade deficit is adding to the U.S. GDP growth helping to offset the fall in spending by consumers and business. Another indication of the strength of exports relative to imports is container imports for the port of Los Angeles, the nation’s busiest port, were down 18.4 percent in June 2009 compared to the same period in 2008 while exports showed a decrease of only 7.06 percent.

The change in this important component of the economy is likely to be sustainable. The massive spending by the U.S. consumer that took place over the last ten to twenty years is helping to spawn middle classes in countries such as China, India, Brazil, Korea, and Mexico that benefited from the U.S. demand for low cost imported goods. Now these people, who have money to spend, will buy goods and services from throughout the world, including the U.S. Helping to fuel this transition to an export economy is the fall in the value of the U.S. dollar relative to many currencies. A lower U.S. dollar makes U.S. goods and services less expensive for people and companies in emerging countries to buy. For those countries that peg their currency to the dollar, they will come under pressure to adjust their currencies to reflect their new higher level of purchasing capacity. 

The cost advantage held by the emerging countries will diminish as their economies adjust to their newfound wealth. This will help to make the U.S. more competitive in the world markets, contributing to the country’s expansion of exports. The growing demand for U.S. goods and services will push the GDP of the country up, offsetting the negative affect of slower spending by consumers and businesses.

As a result, investors looking for ways to participate in the growth of U.S. exports, should look to sectors and companies that provides products and services currently and will be in demand by the emerging countries. The technology and industrial sectors will be the largest benefactors, followed by materials and some parts of the consumer discretionary. The rotation to more exports offers investors an opportunity to participate in a growth engine of the U.S. economy.

Our Premium Members receive suggestions on when to use roll call options to reduce the down side risk of various portfolio positions. If you are interested in learning how to use call options, you should give our four-week free trial to the Premium Membership a try. There is no risk, nor any obligation. If you have any questions regarding membership, please send an email to service@tradingonlinemarkets.com and we will get right back to you. Your complete satisfaction is of utmost importance to us

By Hans Wagner
tradingonlinemarkets.com

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at http://www.tradingonlinemarkets.com/

Copyright © 2009 Hans Wagner

Hans Wagner Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules