A wealth management research chief shares 6 stock-market sectors to buy as the country reopens and the economy experiences its 'best single year of GDP growth since 2000'
- James Ragan expects further market gains, but it’s unlikely that it will be in the double digits.
- Service-centered industries and jobs should recover as the economy reopens later in 2021, he says.
- Financials, materials, industrials, technology, healthcare, and consumer staples stand to benefit.
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Just two weeks ago it seemed like the stock market was in free fall, beaten down even as an army of retail traders sent the prices of so-called meme stocks to stratospheric levels.
However, it looks like those stocks might have had their best days, and the rest of the market turned up the heat by rallying for four days in a row last week.
The market also jumped to record highs on news of declining virus cases and a weaker-than-expected jobs report that will likely iron out the way towards a $1.9 trillion stimulus package.
Amid the volatility, James Ragan, the director of wealth management research at D.A. Davidson, isn’t too worried about the health of the market. He expects further gains this year even after factoring in a market correction.
“We are going to have a bullish outlook on that pullback. There should be pretty good market support in terms of buying interest on pullbacks,” he told Insider in an interview on Friday.
At the beginning of the year, Ragan and his team made a 4,000-point call for the S&P 500 in 2021, which isn’t too far away from where it sits at around 3,900.
However, that’s a 6.5% increase from where it was at the end of 2020, and is a healthy gain based on historical standards, according to Ragan. Historical data shows that the average annual return for the S&P 500 since inception is around 10%. In 1957, when 500 stocks were added to the index, the number was around 8%.
Ragan also expects the economy to reopen in the second half of the year, with service-centered jobs in areas such as retail, hospitality, and bars picking up quickly in April or May.
“We are going to see the best single year of GDP growth since the year 2000,” he said.
Ragan’s outlook is attributable to the positive investor sentiment that’s expected to stem from solid company earnings. Just a few weeks ago, companies like Amazon, Facebook, and Apple beat analyst expectations by reporting better than expected earnings.
However, high price-to-earnings ratios are driving valuations to peak levels in the market, therefore, gains will be more tied to how earnings come in. And with that being said, the market will probably lag earnings growth, according to Ragan.
Nevertheless, he is positive, and says financials, materials, industrials, technology, healthcare and consumer staples stand to benefit as the market normalizes.
Cyclical sectors like financials should do well given the steepening of the yield curve, support from the Fed, and the expectation that lending will start to pick up as the economy continues to grow, he said. Investors seeking broad exposure to the sector may consider the Vanguard Financials exchange-traded fund.
In materials, the value-adding commodity sectors that provide industrial gasses or paint and solvents to building industries also stand to benefit.
And finally, technology will continue to do well. However, he says to make sure portfolios don’t get too overweight in tech. He also asks investors to consider consumer staples, as they are they carry “pretty attractive valuations.” The Consumer Staples Select Sector SPDR Fund tracks this S&P 500 sector.
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