A Cyclical Bias Part II
by Ryan Lewenza, Private Client Strategist, Raymond James
Highlights:
• In last week’s report we outlined our current cyclical bias, with an overweight in the energy, industrials, information technology and financials sectors.
• In this week’s report we cover off our market and underweight sectors. We currently recommend an underweight in the interest-sensitive utilities and telecom sectors (along with the health care sector), and a market weight for the consumer discretionary, consumer staples, and materials sectors.
• An important factor in our call to underweight the interest-sensitive sectors is our belief that bond yields could grind slowly higher in the coming months.
• The materials sector had a solid first half performance, but this was largely driven by an oversold bounce in the gold miners. With China’s economic growth moderating, we believe this could lead to reduced demand for industrial commodities, which could weigh on the materials sector. As such, we currently recommend a market weight in the sector.
• Of the two consumer sectors, our preference is for the discretionary sector, given the sector’s higher earnings growth rate, more attractive valuations, and stronger technical trends.
• We are underweight the Canadian health care sector, and prefer to look to the US for health care equity exposure.
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