Energy to Get Boost From Rising GDP, Financials Won't

Pivoting your portfolio into energy stocks could be a good idea now that GDP data came in Thursday Sept. 27. 

Though many had expected increased interest rates that the Federal Reserve is going through with to propel banks and financials, those stocks may actually head in the opposite direction. Meanwhile, energy most notably, and a few other select sectors could be particularly good plays as US GDP growth looks strong at 4.2%

The economy is chugging along, and the American consumer is growing more confident. Couple that with rising oil prices, and you could find some good energy stocks. Mike Loewengart, VP of Investment Strategy at E*Trade Financial Corp. didn't miss a beat when asked by TheStreet what sectors are currently looking up.

"Energy," Loewengart said. "With oil prices rebounding significantly since a few years ago, coupled with somewhat constrained supply - I think that bodes well for the sector," he said. Others agree. "Energy stocks with high oil exposure, particularly E&Ps, integrates, and refiners" are good picks, John Toohey, head of equities at USAA told TheStreet.

Brent crude oil is up about 42% over the past year, and WTI crude is up about 20% over the same span. Some energy stocks are already trending upwards, with BP Oil PLC  (BP) up almost 2%, Con Edison, Inc. (ED) up more than 1%, and Exxon Mobil Corporation (XOM) up as much as .5% today. 

As consumer spending is expected to uptick in the near term, consumer discretionaries could do well, Toohey said. along the same line of thought, "Fintech stocks that benefit from higher consumer spending, eg Visa Inc. (V) " could be good plays he added. 

But the market could be in for a big surprise, given the hiked interest rates. Many expect big banks to benefit, as their net interest margins will increase. JPMorgan Chase & Co. (JPM) is edging almost 0.5% higher Thursday. Citigroup Inc. (C) is up more than 1%. Morgan Stanley (MS) is up roughly 0.6%. The net interest margin increase doesn't necessarily mean big revenue gains, as loan volumes could decrease. "Financials are under pressure," Loewngart said. "Loan growth is slowing." Toohey again agreed.

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"Our enthusiasm is waning" for bank stocks he said. "The challenge is that loan growth has remained muted," he said. And while Americans have seen some wage growth, some still don't think that growth is quite keeping pace with the cost of borrowing. "Wage growth hasn't kept up with credit expansion," Loewengart said. 

Plus, Toohey doesn't even see much room for improvement in interest margins. "Net interest margins are facing the headwinds of a flattening yield curve and higher deposit betas, so net interest income is not growing as fast as we expected." Regarding the yield curve, the two-year treasury note is currently at 2.8%, with the ten-year only at 3.05%, a thin spread. 

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