The Two Strongest Sectors for Stocks

The confirmation we need for the economy to get going has yet to reveal itself. While the technology sector might be experiencing a rebound in demand, the latest batch of economy data isn’t confirming similar strength in the rest of the economy. This is not a good development, especially if the trend continues.

It’s possible that we’ll get this scenario of decent corporate earnings and weak economic data for the rest of the year. Without a change soon in the underlying economy, corporate earnings won’t be able to sustain themselves through cost control alone. Eventually, revenue growth will suffer.

It’s understandable that investors have mixed opinions about buying stocks in this market. There are two opposing fundamental trends to bet on. I think we’ll end up getting more of the same from the stock market. A long, range-bound consolidation around Dow 10,000. With this backdrop, there are fewer trading opportunities for speculators in stocks.

There is a quite a bit of positive trading action currently in semiconductor-related stocks. Intel Corporation’s (NASDAQ/INTC) earnings news was impressive and a lot of smaller companies are seeing their stock prices ride along on Intel’s coattails. We just talked about Novellus Systems, Inc. (NASDAQ/NVLS) in this column the other day. This stock is trading right around its 52-week high, which is a real accomplishment in this market.

It’s likely that the two strongest sectors for stock market speculators will be technology and precious metals for the remainder of the year. In both cases, I’d follow any existing strength instead of trying to buy low and sell high. Because we’re in a bear market, all you can reasonably expect as a trader are incremental returns. The broader market definitely isn’t expected to take off anytime soon.

I don’t like the latest batch of economic data being reported. This economy needs strong retail sales. It’s one of the best signals we have. The only good news from the monetary side of things is that rates for interest and mortgages continue to be very low. This is helpful to the housing market, but so far hasn’t proved enough to get things going again. Right now, my prediction remains the same: low and slow for quite a while.