Three sectors that will lead the bull market run

A young bull market signals that it is a great time to own stocks. Getty

It came without warning, declaration or an all-clear signal. Last October, terrible 2022’s global bear market died.

A new bull market was born – led by the exact categories that lagged in the bear market.

Doubters from Ajman to Alaska cannot see it, but that beautiful bounce continues now – and still has legs.

As this young bull market charges higher, here are three key sectors that should lead it – and three that could lag behind.

First, always remember: Where you are in a market cycle is more crucial than sector or stock picking. Look at broader market conditions first before considering anything on a more granular level.

Overall, in bull markets, most stocks rise while in a bear market, most fall. Simple! Yet few consider this basic truth.

So, start there. We are in a young bull market now – have been for 10 months – making this a great time to own stocks.

So far, tech and big growth stocks have led the upswing. That should not be surprising, given categories that fall most in bear markets rebound strongest in recoveries – a reality I have detailed in one of my previous columns.

After 2022’s pummelling, global tech soared by a whopping 50.7 per cent off October’s bottom in US dollars through late July. That dwarfs the still-impressive 29.4 per cent rise by world stocks in that span.

Meanwhile, fearful headlines continue dismissing technology’s rise as an artificial intelligence hype-fuelled fake-out, set to fizzle soon.

Such misperceptions are secretly bullish, keeping expectations nicely low for future reality to beat – more firepower for technology stocks.

Other bear market laggards have led, too – including tech-like segments in the communication services and consumer discretionary sectors and industrials, pounded by 2022’s seemingly endless global recession fretting.

After this bounce effect, today’s fundamentals – namely, torpid global economic growth – favour growth-orientated sectors.

In my column on July 4, I detailed how weak expansions lead investors to bid up true growth companies that do not rely on frenetic activity to increase earnings – few and far between.

That means high-quality technology, whose fat gross operating profit margins of 39 per cent drive reinvestment and future growth.

Software and semiconductor companies, in particular, should thrive.

Shop globally for the biggest opportunities. The US is the global centre – start there. Then, look to Germany, Taiwan, South Korea and the Netherlands for country diversification.

Some AI-adjacent technology is fine if it fuels growth but avoid AI pure-plays, however tempting. It is impossible to predict far-flung long-term winners. Do not try to.

The consumer discretionary and communication services sectors should feel a growth turbocharge, too.

In the former, key on luxury goods and its 55 per cent average gross profit margins. I detailed the allure of these sparkling stocks in my column on June 6. You can find them across Europe – France, Switzerland and Italy are hotbeds. Look to the US, too.

Also focus on companies in the broadline retail industry. The biggies are US-based.

In communication services, stodgy old telecoms should lag behind. Instead, feature Big Tech-tied companies in the sector’s interactive media and services industry, which offer some of the best growth opportunities.

They averaged 11.4 per cent in revenue growth in 2022 despite global weakness. Their gross profit margins: 59 per cent. Huge! The US dominates it, so look there.

Look at broader market conditions first before considering anything on a more granular level

Ken Fisher,
founder, executive chairman and co-chief investment officer of Fisher Investments

Laggards? Tied to my view that this is a young bull market, so-called defensive categories face headwinds.

That means health care, consumer staples and utilities. All typically fare better in bear markets.

Why? Folks still need to buy medicine, bread and power during downturns – generating a sense of stability for investors.

But with last year’s bear market well behind us, any stability these categories may have offered flips to risk. Stocks look forward – you should, too.

So, where does that leave energy? Likely lagging. People bid oil and gas stocks too high last year, extrapolating short-term price pinches to 1970s-style shortages that never struck.

Now a supply glut caps global oil and gas prices – and energy companies’ profits.

The US Energy Information Administration projects that the production of liquid fuels around the world will increase by 1.2 million barrels per day this year from 2022 – and by another 1.5 million bpd in 2024.

And despite headlines fretting about Opec production cuts and Russian supply squeezes, oil is down by 37.4 per cent from March 2022’s high.

Markets digested these stale fears long ago and moved on.

Buying a bit from sectors you expect to lag guards against big portfolio swings. AFP

That said – and perhaps counter-intuitively – you should own some of the stock market laggards I foresee.

Why? Because I could be wrong. Buying a bit from sectors you expect to lag behind guards against big portfolio swings. Own some, but less than world stock indexes allocate to them.

There will be a time before long to rotate from high-quality growth to a more value-driven portfolio.

But that probably hinges on a global economic reacceleration that does not look close by. So, be bullish – and own growth.

Ken Fisher is the founder, executive chairman and co-chief investment officer of Fisher Investments, a global investment adviser with $200 billion of assets under management