As the Nightly Business Report’s guest market monitor, Sam Stovall, chief equity strategist of S&P Capital IQ, provided his opinion on where investors could profit in the second half of the year.
The interviewer, Tom Hudson, asked Stovall if it was unusual for the market to be down in the second quarter after being up in the 1st quarter. Stovall pointed out that a down 2nd quarter was a bit unusual unless you look at data prior to World War 2 and then it looks more normal.
Hudson asked Stovall what the odds were the market would see new highs before the end of the year. Stovall responded that 80 percent of the time the market makes its high for the year in the second half and 70 percent of the time it occurs in the 4th quarter.
Moving on to politics, Stovall said whenever the market has risen from July 31st through October 31st the incumbent has been re-elected 80 percent of the time. Ominously for Obama, if the market falls in that period, the incumbent loses 88 percent of the time, he added.
As far as sectors of the market to concentrate on, Stovall mentioned the cyclically sensitive consumer discretionary area, which since 1900 typically gains five percent in the 3rd quarter leading up to the presidential election. Stovall speculated that consumer spending could be supported by low interest rates and declining oil prices, along with the U. S. centric focus of these companies. With investors worried about what’s happening overseas, they’re likely to stick close to home, Stovall explained. This sector is represented by the Consumer Discretionary Select Sector SPDR ETF (XLY).
Hudson mentioned Stovall was hedging his bet by investing in the consumer staples represented by the Consumer Staples Select Sector SPDR ETF (XLP), which are near a 12 month high. Stovall stated, “when the going gets tough, the tough get going, eating, smoking and drinking and so consumer staples tends to do relatively well, good earnings growth, high dividend yield and a very defensive characteristic.”
Stovall finally commented on the virtues of the Technology Select Sector SPDR ETF (XLK) in this environment.