Fed ShiftThen there's the uncertainty about the impact of the US Federal Reserve’s shift toward a tighter monetary policy. There's considerable downside risk during a time of year when the stock market historically tends to perform well. So, we are in the market but with a cautious eye to exit quickly if price deteriorates.
Strategic FocusThe three key sectors we're focusing on this month are technology, industrials and insurance.
TechnologyThis is the area that looks the strongest to us right now. Whether it's the Internet, semiconductors, software or hardware - every area of the technology space has been among the best performers over the last 3 months. An investment we currently like is the SPDR Technology Select Sector fund (XLK) , which is a broad representation of the technology sector. Technology has become so integral to our everyday lives and each year contributes to so much of the growth of our economy. In our opinion, we believe these are the companies people will more likely want to own regardless of the state of the economy.
Industrial SectorMany of the larger holdings in the industrials sector are in manufacturing, defense/aerospace and transportation. In particular, we think that conditions could favor the defense and transportation elements of this sector. The strong dollar and weak oil prices tend to bolster airlines because the strong dollar makes it more affordable for American to travel internationally and the low fuel costs helps improve the profit margins of the airlines. The increasing conflict in the Middle East and other parts of the world makes it likely that companies in the defense sector will see increases in demand over the foreseeable future.
InsuranceGoing into December, we also like the insurance sector because of the potential for rising interest rates and rising insurance premiums. Rising premiums will increase the amount of money coming in, and the possibility of increasing interest rates could increase the amount they are able to earn on those new funds that come in.
Photo Credit: Day Donaldson via Flickr Creative Commons The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
Like what you read?Subscribe to our once-weekly email newsletter and get the best posts delivered to you in one convenient place, to browse at your leisure:
The post Staying cautious until rate hike impact is clear appeared first on Smarter Investing Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.