Investors making a list of their current portfolio holdings and checking it twice are quick to note which sectors have been naughty and which have been nice as 2018 comes to a close. As such, amidst the hustle and bustle of the holidays, investors are keen to adjust their portfolios ahead of 2019 as they decide where to allocate their capital in the new year.
However, before looking forward, it’s also necessary to look back at which sectors have outperformed and underperformed in order to locate opportunities going forward–today’s laggards could be tomorrow’s gainers.
Who’s Naughty
Real Estate: Real estate has come a long way since the Great Recession of 2008 that saw market values plummet to remarkable depths after low interest rates and subprime mortgages pushed homes to exorbitant values. Push the fast forward button and the market is at an inflection point where low affordability as a result of higher prices combined with higher rates could signal more pain or the start of more to gain–something traders will keep on an eye on when deciding to invest in the real estate sector in 2019.
Energy: While volatility crept into U.S. equities during the fall, it’s been a way of life for energy investors and nothing changed in 2018. Oil prices looked like they were going to run away, but a confluence of geopolitical events and supply uncertainties have caused oil prices to run backward—as such, the risk averse need not apply when looking for opportunities in the energy sector.
Materials: Trade wars have presented a tangible risk for the materials sector with the United States and China engaging in a tariff-for-tariff battle, dampening investor enthusiasm for the sector’s outlook. Nonetheless, it appears the sector may get a reprieve should the U.S. and China come to an ironclad agreement within their 90-day timeframe to cease fire on tariffs starting on January 1.
Who’s Nice
Technology: In a profit-fueled finance industry where “What have you done for me lately?” may be more important than what you’ve done, it’s hard to deny the importance of the technology sector for the decade-long bull run despite its recent declines as of late, particularly in the FAANG (Facebook, Amazon, Apple, Netflix, Google-Alphabet) stocks. Nonetheless, the rise of technology, especially in the field of disruptive tech like robotics and artificial intelligence, can’t be overlooked in 2019 and beyond.
Consumer Discretionary: The consumer discretionary sector and technology have provided a formidable one-two punch to help fuel a bull market backed by a tailwind of strong consumer confidence. However, that same confidence will be tested in 2019 as rates continue to rise and the unknown regarding a U.S.-China trade deal looms.