4 Strategies to Maximize Your 2013


James Stack Image James Stack President, Stack Financial Management

Investors could maximize their portfolios by careful selection of the right sectors for 2013, says James Stack of InvesTech Research.

The new year is off to a strong start, with several market indexes, including the broad-based Wilshire 5000, the blue chip S&P 500, and the small-cap Russell 2000, hitting new bull market highs.

Our key technical indicators in breadth and leadership are still in bullish territory and have trended higher since January 1. Also, the economy remains steady, with increasing evidence of a bottom in the housing market, and the recent ISM manufacturing surveys back in expansion territory.

From a sector perspective as well, this continues to look like a bull market. Historical studies show that sector leadership tends to rotate as market and economic conditions change. We’ve divided the stock market cycle into three stages and listed the sectors that have typically been the market leaders during each stage:

  • Stage I covers the early part of a bull market when Financials, Consumer Discretionary, and Technology stocks are among the first to benefit from improving conditions.
  • Stage II is the mid- to late-bull market period. As the economy swings into full gear, Materials, Industrials, Energy, and Telecom generally see their best growth.
  • Stage III includes bear markets, where defensive Health Care, Consumer Staples, and Utilities tend to be the most resilient areas.

In this four-year old bull market, we expect Stage I stocks to fade as Stage II sectors take the lead.