Along with precious metals, I still think that oil and gas service companies are going to do very well in 2006. Most energy producing companies, both small and large, have a lot of cash for exploration and drilling. With oil over $50 a barrel, it really is a great time to be in the petroleum business.
As companies search for new oil and gas assets, the trickle down effect of their capital spending will be significant. We should see some major financial growth from this sector of the market next year.
I’m also starting to feel a lot better about technology, not so much about the big brand-names we all know (like Cisco, Intel, and Microsoft) but in medium-sized technology companies. I think individual investors should have a few technology picks in their portfolios right now. The telecommunications industry is also improving.
My enthusiasm for precious metals is robust, and I can’t emphasize enough the growing momentum that’s taking place with raw metals right now. The Federal Reserve is going to have a tough time with monetary policy in 2006, because economic growth and strong commodity prices will keep pressure on short- term rates.
If the Federal Reserve acts too strongly over the coming quarters, naturally it risks killing the housing market strength, which has run for many years now. This is the greatest risk to the economy.
There is a lot of leverage in the housing market, and any unnecessary spike in the cost of money may force a price correction that will affect just about everyone. This wouldn’t be good for the economy or the stock market.
The best strategy for the Federal Reserve is “slow and steady.” The good news is that this economy is decidedly strong, and investor sentiment seems to be improving. One thing’s for certain, 2006 is going to be one interesting year.