Every investor should have a strategy. It may be very simple, like don’t do crazy stuff. Or it could be to hold index funds, accept the market return and focus all your physical and intellectual efforts on excelling at something else.
Most brokerage houses, financial publications and investment managers have people whose job title is strategist and do this full-time. Most often, in my experience, strategists are not investment stars. Rather, they have either never managed investment portfolios at all, or haven’t been particularly good at doing so. They’re part of a firm’s sales effort. They visit clients to explain how their firm is constructing its portfolios and why.
I’m writing this today because I’ve just read one of the oddest strategy pieces I can ever recall seeing. It came from a big brokerage firm. Its conclusion was that the stock market will continue to rise over the next year. But the market will be led by Utilities, Consumer Staples, Healthcare and other defensive market sectors–which typically outperform only in down markets.
The weird part is that there was no explanation of this paradoxical forecast.
Essentially, it calls for a bull market that rises without help from big, typically up-market outperforming, sectors like Consumer Discretionary or Tech. The idea may be that last year’s stars will underperform as the market rotates, based on valuation, to last year’s losers. But the situation is more complicated than this. The forecast would seem to imply that last year contained little bounceback from the pummeling dealt to up-market sectors in 2022–or, put a different way, that the beating IT and Consumer Discretionary took when they were the two worst sectors of 2022 didn’t make them undervalued: it just restored fair value post-pandemic.
Maybe so, but not something I’d take for granted.