While U.S. stocks are in a rally mode, investors are better off with cyclical stocks and sector exchange traded funds.
JPMorgan Private Bank Chief Investment Strategist Kate Moore argues that cyclical stocks are the best way to capitalize on a U.S. recovery, CNBC reports.
“We’re still very cyclically biased in all of our portfolios,” Moore said in the article. “And to be fair, there have been quarters this year and months this year that it has not been the best play, but we feel very convinced and confident in the U.S. recovery.”
Specifically, the strategist singles out technology, financial and energy sectors, along with health care stocks.
“We feel very comfortable owning tech as a broad sector, still financials,” Moore said. “We like parts of energy. And on the kind of counterbalance, we’ve been owning a lot of health care.”
In the financial sector, Moore believes that rising interest rates will benefit bank stocks over the long-term. The Financial Select Sector SPDR (NYSEArca: XLF) has fallen behind the broader markets this year, with the SPDR S&P Regional Banking ETF (NYSEArca: KRE) off 2.6% so far this year. [Favored Rising Rates Ideas]
“We think financials are going to do well as rates rise over the next 12 to 18 months, and we still see the environment, as I mentioned, for macro growth and for activity really positive,” Moore said.
Moreover, large-cap tech stocks may have been overlooked as more investors were captivated by the swings in smaller growth stocks. More conservatively-positioned tech ETFs, such as Technology Select Sector SPDR (NYSEArca: XLK) and the Vanguard Information Technology ETF (NYSEArca: VGT), have been holding on, with XLK up 13.4% and VGT up 13.1% year-to-date.
“A lot of the large-cap tech, I think, had been under-recognized by the market, particularly the beginning of this year—and is a huge beneficiary of increased cap ex and more corporate spending, more so than, we think, other sectors,” Moore said.
Meanwhile, health care sector stocks and ETFs, like the Health Care Select Sector SPDR (NYSEArca: XLV), are still attracting interest. XLV is the midst of a three-year run that has seen the ETF surge 112% compared to 83.8% for the S&P 500. [Investors Still Writing Prescriptions for Health Care ETFs]
Additionally, while the strategist remains positive on the U.S., she also points to additionally exposure toward the emerging markets, notably “upside in Asia.” Investors can also carve out emerging Asia exposure through the iShares MSCI Emerging Markets Asia ETF (NYSEArca: EEMA), which is up 10.0% year-to-date.
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Max Chen contributed to this article.