Other money managers take a similar stance. Banyan Partners' Pavlik, based in Palm Beach Gardens, Fla., says it would be premature for investors to take a defensive stance based on the recent jump in oil prices stemming from expectations of production shortfalls.
"You'd need real production halts to have a long-lasting, fundamental impact," Pavlik says. "So far, we just haven't seen it yet. This is all speculative trading that has been going on. You'd be making a mistake to exit out of some of these discretionary, cyclical sectors at this point because the economy is still on track and it is still growing."
Stronger manufacturing and industrial companies' higher capacity utilization underscore a healthier economy, Pavlik says. However, investors remain worried about sluggish job growth, he says.
Dearborn Partners' Nolte, based in Chicago, takes his greatest comfort that the stock market is in a short-term pullback rather than a collapse by comparing advancing to declining stocks.
"When we take a look at the advance/decline line, it hasn't changed since August," Nolte says. "That means we haven't seen a deterioration in the market internals, which is what you would normally see before any big decline. We saw that in 2007 and we saw it in 2010 before the summer swoon."
Investors should be keeping a close eye on the relationship between defensive stocks and cyclical stocks, Nolte says, as a change in leadership would also likely mark the start of a downturn.
"If we start to see the more defensive sectors outperform the cyclical sectors, that is when we will change how we go about things," he says. "So far we haven't."
These money managers find opportunities for investors in energy, materials and industrials, which
details on the following pages along with areas that investors should be concerned about.