Earlier this year, my favorite economist Ed Yardeni described the state of the U.S. economy as a “rolling recession.” This means that there are corners of the U.S. economy that are struggling, while others are thriving.
For example, areas such as manufacturing had been in a recession for four-straight months in March, while, on the thriving side, the job markets remained healthy.
But given the current economic environment, Yardeni has changed his tune and is dubbing it a “rolling recovery.” Yes, the manufacturing sector has continued to contract for several months, but an improvement in the housing industry is anticipated to help boost manufacturing activity.
In other words, the sectors that slipped into a recession during the “rolling recession” have now started to recover and fewer sectors have persistent weakness. The Commerce Department even announced that the U.S. economy grew at a 2.4% annual pace in the second quarter. And this bodes well for continued strength in the stock market, especially in certain sectors.
Now, there are 11 sectors in the S&P 500: healthcare, materials, real estate, consumer staples, consumer discretionary, utilities, energy, industrials, consumer services, financials and technology.
Of these 11 sectors, there are four that are offering the best investment opportunities in this “rolling recovery”…
- Energy
- Consumer Discretionary
- Real Estate
- Technology
In today’s Market360, I’ll review what’s driving the strength behind these sectors. And then, I’ll share what you need to do to ensure that your portfolio is poised for growth, too.
Energy
The resurgence in energy and energy-related stocks has been impressive of late. One reason behind the recent strength is supply and demand.
China has imported more crude oil this year than last year. In the first six months of the year, China imported 11.4 million barrels of crude oil per day. That’s 11.7% higher than a year ago. Interestingly, 2.13 million barrels of oil per day came from Russia. So, China has boosted its crude oil stockpiles by taking advantage of cheaper Russian crude oil.
However, the amount of oil leaving the West Coast of Russia to be shipped around the world is now at a seven-month low. The OPEC+ production cuts have also gone into effect, with Saudi Arabia cutting production by two million barrels per day. So, supplies are tight, and crude oil prices have meandered higher. In fact, crude oil prices broke above their 200-day moving averages, with West Texas Intermediate (WTI) crude prices now at a three-month high, breaking above $80 per barrel.
I should also add that energy stocks have been aided by the tension in the Middle East, as Iran continues to hijack ships. The U.S. Navy even dispatched two amphibious warships and thousands of marines to the Middle East to counter Iranian threats.
Energy stocks are also benefitting from margin expansion. The refiners are benefitting from high seasonal demand and wide crack spreads. In the meantime, integrated energy companies have boosted their production and no longer need high crude oil prices to improve their earnings.
Finally, Russia remains a wildcard in the world energy market, and it is widely perceived that their production will systematically decline when winter arrives. I should add that Russia’s seaborne crude oil exports have fallen substantially in recent weeks and are now running at the lowest level this year.
Consumer Discretionary
As far as the consumer is concerned, we just have to follow where they are spending money, which lately seems to be home improvement, restaurants, travel and entertainment. The service sector is responsible for virtually all the economic growth in the U.S. since the manufacturing sector is sputtering.
The Conference Board recently announced that its Consumer Confidence Index surged to 117 in July, up from 110.1 in June. Both the Conference Board’s expectations and present situation components rose in July, which is a very good sign.
Plus, cooling inflation could inspire Americans to open their wallets more in the upcoming months, too. Consumer inflation is now running at a 3% annual pace based on the Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE) index. Wholesale prices are running at a 0.1% annual pace based on the Producer Price Index (PPI).
Overall, consumer confidence is now at its highest level in over two years (since July 2021), which bodes well for strong retail sales.
Additionally, auto repositions are rising, so used car prices will likely be falling as these vehicles are resold. There is no doubt that consumers remain pinched, since credit card debt continues to rise, which is causing banks to increase their loan loss reserves. Typically, credit card companies expect a 1.5% default rate on credit card debt, but based on new higher loan loss reserves, banks seem to be anticipating a 3% or higher default rate.
Real Estate
In May, housing starts rose 21.7% to a 1.63 million annual pace – the largest increase since 2016. Analysts had projected housing starts would decline 0.1% to a 1.40 million annual pace.
The homebuilding sector also remains strong primarily due to the fact that the inventory of existing homes remains suppressed. Many homeowners have low mortgage rates, and they are reluctant to sell in an environment of higher interest rates. So, homebuilders now have to build more homes in order to meet demand in growing areas.
Lower inflation should also help mortgage rates cool off, which could inspire more folks to purchase a new home.
Technology
The tech sector has rebounded strongly this year, with the NASDAQ up nearly 33% year-to-date. And one of the primary drivers behind this recent strength is artificial intelligence (AI).
But there is still much, much more upside to be had here.
Thanks to AI, we’re on the cusp of curing major diseases and totally transforming the way we work, live, and play.
This change is happening faster than ever. And large language models – the models powering OpenAI’s ChatGPT and its peers — are only the tip of the iceberg.
Consider self-driving cars. Today, it’s hard to imagine that robo-taxis could someday shuttle us to and from work… or that we could hire them out to make extra cash.
But Tesla, Inc. (TSLA), General Motors Company (GM), and Alphabet Inc. (GOOGL) are all making significant advances in this technology. By 2025, the industry could be worth north of $45 billion to these three firms. And the car companies that aren’t on this list will miss out.
The same changes are happening in manufacturing… media… and even law firms.
The AI Revolution
In short, an AI Revolution is underway.
My fellow InvestorPlace colleagues Eric Fry and Luke Lango agree that there is a lot of potential in the AI space, so we decided to team up and create a very special portfolio called the AI Revolution Portfolio.
We combined my quantitative stock-rating system with Eric’s global macro investing expertise and Luke’s technology insights, and we found ten stocks that we believe will not only dominate their industries because of their use of AI, but also shape the way the world uses this nascent technology.
We released the first nine stocks last Thursday, and then added the tenth stock to our AI Revolution Portfolio this past Thursday. To get access to our full list of AI stocks, join us at AI Revolution Portfolio today.
Additionally, if you become a member of AI Revolution Portfolio today, you’ll get access to two brand-new reports: How to Buy Private Shares of an AI Innovator and 10 Stocks That Could Go to Zero.
In the first report, Luke explains how to invest in a private AI company in the culinary space. And in the second report, we feature 10 stocks that could soon go to zero as the AI story plays out. These stocks are household names and are held by millions of investors.
Click here to find out how to access our AI Revolution Portfolio today.
Sincerely,
Louis Navellier
Analyst, Market 360
P.S. Last Thursday night, I sat down with my colleagues Eric Fry and Luke Lango to hold our first ever AI roundtable discussion called the AI Impact Event.
If you haven’t seen it yet, you can watch a replay here.
We discussed how a new development in AI is about to shake the entire stock market to its core, sending hundreds of stocks crashing in the process.
The three of us laid out the critical steps you need to make immediately to safeguard your money.
If you have any money in the markets, you should watch this now.
