Understand the markets this week, November 14th


    “’Compared to the overall stock market, cyclicals are in a similar position to the beginning of several large bull markets in the past: early 1960s, early 1980s, early 1990s and early 2000s,” he writes in a Note. COVID-19 has messed up some of these strategies, in part because the cycles are so difficult to identify. In May and June 2021, it seemed like the US was winning the war on the pandemic through vaccination and the economy was poised to enter a long recovery period. Then in August it became clear that the Delta variant could pose a major challenge to a full reopening, and some investors were moving back to “growth sectors” like technology that initially fueled the market in the early days of the pandemic. “

    And the technology leaders in the market may have made their way into this secular recreational space. Also from this TD piece:

    “‘As the economy shifted more service-oriented, many services are made possible by technology,'” said Cruz. ‘To perform well in a service-driven economy, technology companies with solutions are in a good position to help a service-driven business.’ ”

    The pandemic is still the wild card in the deck. It shaped our behavior. And maybe because of that we are changed forever. And our world is adapting, as is our definition of certain sectors and they might not work under certain economic conditions. It’s not a complete rewrite of Sector Performance, but it does seem like some editing is needed.

    On the evolving sector theme, Goldmans Sachs has released a number of ETFs including the Future Consumer, Future Healthcare, Future Real Estate, Future Tech Leaders and a Future Planet ETF that invests in the pursuit of a greener planet.

    This could be confusing to many investors, and couch-potato investors might suggest that the deliberation is a complete waste of time. For them it is. The couch potato portfolios hold all sectors and balance as planned.

    Most Canadian self-directed investors, however, build their portfolios around baskets of individual stocks. It is important for these investors to look at sector concentration to see if the portfolio contains a portfolio. An early stage investor might approach sector and asset allocation from a different perspective than a retiree or a near-exhausted retiree. You may need a healthy dose of defensive stocks and funds.

    This sector rating can be a consideration for many investors who have Canadian home bias – and who may exaggerate sector weights even further as they pick individual stocks. As we know, retail Canadian investors love their dividend stocks and will be largely overweight in finance, telecommunications, utilities and pipelines. They are light on cyclicality and growth and that could incur opportunity costs and miss out on potential market gains.


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