Let’s face it, predicting market trends is not a job for the casual trader and can be somewhat of a chore, even for seasoned professionals during times of instability.
Currently, the market is anything but stable. Even though the economy is doing well, the market has been experiencing some jitters, according to many analysts.
These jitters can explain certain reactions that we have seen recently, such as the Commerce Department report that showed new orders for U.S. manufactured durable goods fell 0.6 percent month-over-month in May. However, back in April, manufactured goods fell 1 percent. So, apparently, the trend is positive.
Furthermore, the latest jobs report indicated an unexpected number of new jobs created — approximately 213,000 — yet another positive sign.
Nevertheless, as we wrap up the second quarter, there is little indication that the volatility of the past will change or settle down for an extended period of time. Further adding to the uncertainty, is the imminent release of the latest corporate earnings reports, many of which are coming with high expectations. Should earnings reports not meet expectations that could easily add to the already existent volatility.
However, that doesn’t necessarily mean that there are not prime investment opportunities. The successful investor will stay informed of changes to market conditions nationally and internationally. Understanding these market trends can direct investors to sectors and individual companies that may show promise.
With interest rates inching upwards and monetary policy tightening, now may be a time to begin thinking defensively. For some investors, that could mean close consideration of select utility stocks. Utilities are one of the classic sectors that have traditionally been comparatively strong, even during challenging market conditions — some even thrive during these times.
Consider other so-called defensive sectors that have traditionally held up during similar economic conditions in the past. Aerospace and defense could be an option, particularly because of increases in federal defense budgets. Other sectors include services or products and consumers and even the government tends to rely on, regardless of economic trends: beverages, and health care equipment. Keep in mind, of course, that history is no guarantee of future results.
Another way to consider what sectors are worth investigation is to look at ways foreigners are investing in the U.S. economy. It doesn’t take too much research to find that a key area for foreign investors is commercial real estate. Compared to potential rates of return available in say, London or Asia, the U.S. commercial real estate market offers the possibility of higher returns along with an ability to far more easily exit the market if needed.
The often-asked question of how one investor rose to the top while so many others failed or at least did not advance during uncertain times, can usually be answered by noting that successful investors were prepared and informed. That in turn leads to appropriate investments at the right times with resultant rewards. Luck usually has very little to do with the outcome of successful investing.
It doesn’t hurt to remember that even with occasional setbacks, the market does tend to go up over time. Researching the sectors and companies that survive previous downturns and emerge stronger in the long run should provide valuable investment insight. And, there is nothing wrong with maintaining current investments if they are holding firm.
Though it takes time and effort to stay knowledgeable about market history and current activity, if you are going to work at something, it may as well be the means to secure your successful financial future.
Lisa Santo is a financial adviser with the Wealth Management Division of Morgan Stanley in Manhattan and can be reached at 212-883-7707. She is a resident of Sleepy Hollow.
The information contained in this interview is not a solicitation to purchase or sell investments. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates.