4 sectors to avoid in your portfolio

September 27, 202310 Comments

OK, you guys know of my bullish stance on hard assets. I also like certain value stocks. For example, commodities and certain international markets when the markets complete my predicted pullback. Stay tuned to this blog for more on that. But today, I’d like to examine my “avoid” list – aka sectors not attractive in my eyes. These sectors are NOT on my buy list! 4 sectors to avoid in your portfolio!

Automotive:

In the news…

BIDEN SAYS HE AGREES UAW SHOULD GET A 40% INCREASE  – TELLS STRIKING AUTO WORKERS TO ‘STICK WITH IT’

Elon Musk on this headline: “A 40% raise with a 32 hour workweek would drive the Big 3 bankruptcy into the Fastlane”

Technical view: GM chart below, which is similar to the Ford chart. Watch to make sure the very obvious support levels on these charts hold, given the economy, and the new labor costs. In GM’s case, watch for $30 to hold. If not, it could be ugly. If it does, perhaps a neartermed upside trade to the top of that range ($42) is possible. Or not.

 

Technology:

Four reasons why I continue to be pessimistic on technology (I’ve been beating this drum since early August):

1) Rates – Broken record for me, but the street is finally coming around to  the idea that rates are “Higher for a Longer”

2) Lack of catalysts – EPS season is still 3 weeks away and seasonality is behind us.

3) Technicals – XLK looks to be breaking a double top neckline – another week or two will confirm the breakdown of neckline. Chart below.

4) Strong Dollar – A strong USD makes Large cap tech goods/services more expensive globally

Middle class focused Consumer Discretionary stocks

I did a video on this subject recently, where I examined middle-class non-essential expenditures (motorcycles/ATV’s/snowmobiles/Ski-do’s, mid-level “prestige” cars & sports cars, boats, watches, handbags, jewelry, etc). Here’s the video: Discretionary Stocks Point Towards Weaker Economy – ValueTrend

This centers around consumer balance sheet deterioration.  Not everyone is a union worker with the President alongside them on the picket line hoping to receive 40% wage increases over 4 years…see the automotive comment above.

Banks

In this environment, who do you loan to if you are a bank?

Again, not everyone is a union employee receiving huge wage increase right now. In fact, most middle class workers are NOT in unions. Wage increases in wide scale, BTW, end up becoming moot. This, after the effects of the higher wages are passed on through the prices of products & services these employees supply.  The circle of stagflation. Its like the Lion King’s circle of life lesson to his son. But the son isn’t listening to this lesson.

What’s the catalyst to make either the US or CDN banks break out? None that I can see just yet…

US banks (ZUB-T): Basing at best

CDN banks (ZEB-T): Long sideways pattern.

10 Comments

  • I was wondering what your thoughts are on Canadian Utilities, including pipelines. Reits have been punished as well, BSR, ERE, FCR . They have been crashing lately as I believe the market finally believing that the rates are higher for longer. .

    Reply
    • Utilities recently broke support, so hard to like them here. REIT’s are testing support. If they catch a bid, could be good. But I tend to buy on confirmation of support being held. Please tee the Online Technical Analysis Course for more on that.

      Reply
  • while i agree the xlk etf looks like it could break down there are some of the biggest tech names that could still do well. They have hordes of cash which will look quite fine as a treasury note/bill or bond. while the effects of AI wont be truly realized for years to come these larger tech companies have been implementing machine learning for a long time..

    Reply
    • Indeed, Mark. I am commenting on what I don’t want to own NOW. Nothing lasts forever. Look at oil–in the dog house, now in the limelight. Eventually, tech will rally back and oil will fall. For now, I see the opposite. But I will act when they act.

      Reply
  • While I agree with your current view of Canadian banks, ( despite the favourable seasonality) they are certainly on the watch list for a long term investor. It is not often that they are available for purchase at less than book value and a yield of 6%.

    Reply
    • Thanks for bringing that up Brian. Yes, for yield they are fine, and in fact we have a CDN bank ETF in our income platform. We don’t anticipate upside or downside–aka we see flat performance until the BOC or FED begin to stimulate or at least rumble about stimulation. Actually, it al comes out on the charts – so a breakout will likely coincide with such rumblings, in which case I become a bull. Its for that probability of low capital gains potential for the time being they are not on my equity buy list, but fine – as you note- for income / dividend accumulation.

      Reply
  • Just to add to Mark’s comment above, some mega cap tech is actually benefiting from higher rates. MSFT has so much in cash equivalents on its sheet that it’s earning far more from interest than it’s paying out to service its debt. The stocks that performed the best in the first half are down 15-20%, but I’m sure you’ll be waiting for the charts to signal a turn.

    Looking forward to your Ask Me Anything responses.

    Reply
    • True – like I said about David Rosenberg’s comments, we have to be careful when we just say the word “stocks” – or commodities – there are many of them that comprise the market. And they don’t all move together.

      Reply
  • Any thoughts on Brookfield Infrastructure and renewables? Seem to be at quite depressed levels now.

    Reply
    • can you call this one into my BNN appearance on Monday, Gary? I can’t address individual stocks on this blog. Thx

      Reply

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