NEW YORK (TheStreet) -- Just as some European countries combine capitalism and socialism -- called the third way -- investors would do well to find a new strategy that combines long-term and short-term trading strategies.This year has been marked by big stock-market moves -- in both directions, sometimes on a daily basis. Last week alone, the Dow Jones Industrial Average moved almost 200 points each day in both directions. Watching the ups and downs has been an emotional roller-coaster ride for investors. Unfortunately, the craziness isn't going to end any time soon, with the European credit crisis far from being over, a sputtering U.S. economy, and emerging markets that are slowing.
Over the past three years, dividend-paying stocks have outperformed the S&P 500 by 15 percentage points. For most of this year, defensive stocks have led the market. But over the past month, cyclical names took charge. UBS expects the outperformance by this group to continue, saying: "The energy and material sectors are most sensitive to shifts in the economy and markets. Additionally, we continue to see opportunities in tech, industrials and financials." So far this earnings season, the materials sector has reported the largest revenue surprise. On top of that, it's also the cheapest sector. Industrials have also reported solid third-quarter earnings, with strong sales to agriculture, mining and car companies. Additionally, many companies, such as Ford ( F - Get Report) and DuPont ( DD - Get Report), are reporting accelerating growth in U.S. sales as international sales slow. Those cyclical sectors will be among the first to emerge from a global recession, representing a great investment opportunity. All told, corporate fundamentals are starting to show signs of improvement, with around 70% of the S&P 500 beating third-quarter earnings estimates. Employing some of the strategies listed above may mean better-than-average returns when the world economy rebounds. Nevertheless, stock investing is still far better than leaving your cash in a savings account.
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