Malls over metals: trends to watch in the second half
The American consumer is coming back, and big, boring companies are on the rise
The flagship Herald Square Macy's Department Store in New York is seen on Thursday, Aug. 12, 2010. Consumers in the US are resurgent, writes guest blogger Joshua M. Brown.
Richard B. Levine / AP / File
The script since Jackson Hole's QE2 announcement last August has been midcap growth, commodities with an emphasis on precious metals and the corporate cash pile spending cycle kicking in. If it wasn't about Commodities, Industrials, Techs or Energy nobody wanted to be bothered with it.
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Joshua has been managing money for high net worth clients, charitable foundations, corporations and retirement plans for more than a decade.
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I rode all those trends with you guys, and now I'm flippin' the script for the second half.
Here are the nascent trends I see right now and how I think they play out:
Big n' Boring - It took energy 3 months to extend its lead as the best performing sector of 2011 - and only 10 days to wipe that all out. The top performing sector year-to-date is now Healthcare, imagine that.
The Morningstar healthcare sector is up 13.4% for 2011, led by big moves in boring giant stocks like Sanofi-Aventis - the $100 billion company has seen a 22% gain in its share price since January 1. All the top-performing large cap ETFs this year are healthcare focused, you're just not hearing about them above the din of Fedhating and inflation predictions.
And Sanofi's not alone, by the way; Pfizer's up 18.5% this year! Pfizer! For the last ten years we were holding a mirror under its nostrils to see if it was still breathing. Roche, Glaxo and even JNJ are makin' moves. This is where the money is rotating to - not the Loud money, the Quiet but Large money.
And speaking of once-boring stocks, have a look at the Utilities sector. Over the past year it's lagged the rest of the market by more than 20% - but year-to-date it's pulled into second place.
This shift into boring is also a shift into big. It is imperceptible to many as they continue picking their spots on the names that had been working, but the data tells the story better than I can - over the last 13 weeks, the large cap core index is up 1.11% on a total return basis, this is versus a small cap core portfolio's loss of 2.02% on an apples-to-apples basis. Keep in mind that this is with virtually zero help from all those big bank stocks that aren't pulling their weight with dividends or upside performance.
Lastly, I want to get into the big techs real quick. These stocks cannot get arrested. This may be overdue for a change. I'm gonna tell you about three wicked smart market players that are onto this one:
1. The Goat is showing me charts of a great low-risk entry on Cisco here, although the company's upcoming earnings report may give him pause.
2. Vitaliy Katsenelson, one of the most brilliant and articulate value investors in the game right now has told me offline that to ignore the large cap techs here would be criminally foolish, as "boring" as they may be.
3. Derek Hernquist and I must be brothers from another mother, he and I are both hitting on this out-of-momo into Growth-At-a-Reasonable Price (GARP) rotation at the same time but from different angles. Here's Derek's observation.
Bottom Line: The sexy small cap trade that worked for 9 months straight is ceding dominance to big fat boring utes and pharmas, your advantage being that most traders don't yet know these names very well (or have forgotten them).
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