On Sectors, ETFs And Individual Stocks

Over the course of this very difficult year in the stock market, there have always been some sectors that continued to perform positively. For the first 6 months of 2008, commodity-based investments performed extremely well: energy and fertilizer stocks come to mind. Foreign currencies, U.S. companies with big exports and precious metals did well as the dollar continued to fall.

Then, in July, the financial sector took off as the market decided there was not going to be a total meltdown of the U.S. financial system and that the market had over reacted to the downside. Biotech has also done well for the last few months.

Over the last few weeks, however, there seems to be no safe harbor. Oil is falling, dollar is rising, financial stocks appear to still be in trouble, housing continues to struggle, precious metals have fallen, other commodity and related companies are falling, emerging market are falling, unemployment is rising. It appears the benefit of falling energy prices has arrived too late to keep the economy from slowing further and almost all sectors are being viewed negatively. Airlines have had a nice positive pop from falling fuel prices, but I have little hope they can turn this into long term positive results.

Using the excellent data screener at Index Universe to find the top sectors for the last three month’s ETF performance I find almost everything in the top 25 is short, inverse or ultra-short. If they are not short style ETFs, you see the heart warming names like PowerShares Cancer and HealthShares Infectious Disease doing well in the current market. How appropriate!

I am a stock picker, not a sector or anti-sector chaser, so times like these are tough. My stock selections are ones I believe will continue to grow their earnings even if there is economic slowing, but this matters not when market psychology is in the current mood. At this point, I plan to sit tight, build a little cash and selectively pick up a few shares of my favorites when it appears the current down draft bottoms. Collecting dividends helps also and this site’s Income Portfolio has generated approximately a 5% positive return over the last 5 months. This is the 3rd time in 2008 the market has made a serious pull back and I hope it is the last. I do not see a lot of good news until the election results are in and, at about the same time, lower energy costs start to make consumers and business feel positive about their situations.

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