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The Bear Market - Opportunities in the Major Sectors of the Market

The Bear Market - Opportunities in the Major Sectors of the Market

| June 22, 2020
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Did you check out our blog post last week where we covered a bit of information to familiarize you with and share the status of the current bear market?

If not, go ahead and click the link and take a look. 

It may help to take a look at that as we dive in here to the opportunities within the current market and where there is potential and opportunity.

So let’s go over some of the major sectors in the market and where opportunities are depending on how much risk you are willing to take.

There are 11 major sectors we have to choose from. They include:

  • Healthcare
  • Consumer goods
  • Utilities
  • Telecom
  • Technology
  • Consumer services
  • Real estate
  • Basic materials
  • Industrials
  • Financials
  • Energy

You can see right here on this slide that the 3 worst years to date are real estate, financials, and energy. 

Look at the S&P 500, it is pretty much flat over the last 12 months.

As of May 7, 2020, financials are down 17%, energy down 41%--- that’s right 41%, real estate down 14%.

Then, we have something called the dogs of the dow which is down -22% over the last year.

Let’s talk about each of these in detail.

WHY FINANCIALS AND REAL ESTATE THIS TIME AROUND...AGAIN?

Simply there’s a lot of legitimate concerns around lending.

With so many people out of work, many businesses are folding. There’s a lot of questions around whether there could be a huge wave of foreclosures in virtually all kinds of real estate.

Commercial real estate, multi family real estate, single family homes, storage facilities, etc, etc.

Or at the very least people are late on payments.

Banks are the ones doing the lending which is causing lots of potential issues for them and for the real estate index which has a ton of real estate investment trusts which are owners/managers of various types of buildings.

On one hand, more bad news could be coming. They could be getting even lower as the bad news continues.

On the other hand, all these types of stocks are significantly cheaper than they have been and could be great long term buys if you have the patience to wait 2 or 3 or 4 or 5 years.

WHY ENERGY?

If you’ve had a significant concentration in energy stocks, you may be wanting to scream your lungs out right about now.

A lot of pain right now.

If you refer back to the chart from earlier, you can see this is THE worst major sector. Down 41% through May 7th.

There are multiple things going on here.

First, the oil cartel, OPEC and Russia couldn’t come to an agreement on cutting production for quite a while. That continued amount of a high amount of supply and same amount of demand caused the price of oil to drop some.

Then, Corona happened and energy dropped like a rock. People aren’t travelling. People aren’t flying. Shipping has become a fraction of what it was before.

The environment is getting better, but it’s been horrible for energy companies.

Then, they still couldn’t come to agreement and oil futures actually turned NEGATIVE. You literally couldn’t give away a barrel of oil.

Since early April, if we go back to our earlier chart, in 1 month, energy companies had the best month --- they were down significantly lower than where they are at now.

Could they go down further?

Absolutely. It’s a possibility.

But if you take advantage of this opportunity, are you still buying super low?

Again, absolutely.

I’m going to sound like a broken record here, all these types of stocks are significantly cheaper than they have been and could be great long term buys if you have the patience to wait 2 or 3 or 4 or 5 years.

But it is riskier than buying the general market of the S&P 500 or mid caps or small caps. Higher risk and higher potential reward.

DOGS OF THE DOW

In the chart above I also mentioned the Dogs of the Dow. 

So what are they?

Dow Jones Industrial Average is composed of 30 different companies that change every couple of years.

Dogs of the Dow is an investment strategy that attempts to beat the Dow Jones Industrial Average (DJIA) each year by optimizing towards high-yield investments.

The general concept is to allocate money to the 10 highest dividend-yielding, blue-chip stocks among the 30 components of the DJIA. The strategy requires re-balancing at the beginning of each calendar year.

Because the Dow is one of the oldest and most widely followed indexes in the world—and generally is seen as a barometer for the broader market—it is not uncommon for market strategists to base investing techniques on some components of the DJIA.

The main reason to follow the Dogs is that it presents a straightforward formula designed to perform roughly in line with the Dow.

Dogs of the Dow relies on the premise that blue-chip companies do not alter their dividend to reflect trading conditions and, therefore, the dividend is a measure of the average worth of the company.

In contrast, the stock price does fluctuate throughout the business cycle. This should mean that companies with a high dividend relative to stock price are near the bottom of their business cycle, so their stock price likely would increase faster than companies with low dividend yields. In this scenario, an investor reinvesting in high-dividend-yielding companies annually should outperform the overall market.

Dividend stocks offer current income and growth potential, so it is no surprise many investors are attracted to them. All 30 companies that comprise the DJIA pay dividends and are among the most important blue-chip businesses in the global economy

That particular strategy has been doing worse lately than the S&P 500.

Could be a great opportunity!

FINAL THOUGHTS

So we have gone over a few of the main sectors in the market: real estate, financials, and energy and how some of those sectors may pose great opportunities in the current market. 

Those were the main sectors of the market. Next week I’m going to cover some of the sub-sectors in the market and where you may find more opportunities for investment there as well!

Looking for more advice or have any questions? Feel free to send me a message at dave@daviddenniston.com!

Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.

The views expressed are those of the presenter and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation. Neither United Planners nor its financial professionals render legal or tax advice. Please consult with your accountant or tax advisor for specific guidance.

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