By Kate Gibson
As the U.S. stock market on Thursday rode a wave largely
dictated by the latest quarterly earnings, some equity analysts say
investors would be wise to focus on sectors where the government
also is investing, namely manufacturing and residential real
estate.
"The government is not only the lender but the spender of last
resort," said Doug Roberts, chief investment strategist for Channel
Capital Research.
Economic conditions have improved, helped along by political
actions and economic stimulus," said Robert Pavlik, chief market
strategist at Banyan Partners LLC, which early this year turned to
early cyclical sectors that would benefit as the economy began to
rebound.
"The sectors we continue to favor include consumer
discretionary, industrials, financials, basic materials and the
technology," Pavlik said.
"Bill Gross of Pimco says he's directing his portfolio to where
government is buying," said Roberts, referring to the manager of
Pimco Total Return Fund (PTTRX), who lately has been reducing
exposure to mortgage-related securities. .
Depending on which estimates one uses, Roberts added, as much as
80% of the stimulus hasn't actually been spent yet.
On Thursday, U.S. stocks solidified gains in afternoon trade,
with earnings reports from multiple components on the Dow Jones
Industrial Average (DJI) boosting sentiment and the blue chips,
lately up 129.53 points, or 1.3%, to 10,078.89. The S&P 500
Index (SPX) added 10.22 points, or 0.9%, to 1,091.62, while the
Nasdaq Composite Index (RIXF) added 10.74 points, or 0.5%, to
2,161.47.
Among the leaders on the Dow industrials were shares of 3M Co.
(MMM), up 3.5%, after the St. Paul, Minn.-based diversified
industrial giant lifted its 2009 guidance.
Among the session's top gainers, ProLogis (PLD) shares jumped
nearly 10% after the real estate trust, which operates industrial
distribution centers, noted stabilization in property markets.
.
Elsewhere, the shares of home builders were mostly higher, with
KB Home (KBH) up 5.5%, and both Lennar Corp. (LEN) and Pulte Homes
Inc. (PHM) up almost 5%.
Shades of beige
Pointing to Wednesday's release of the Federal Reserve's summary
of current economic conditions, commonly known as the Beige Book,
Roberts said "the bright spots were residential real estate and
manufacturing." .
While the improved climate for manufacturing is in large part
related to government support of the auto industry, Roberts
highlighted the "ripple effect" that comes along with the sector's
improvements.
Shares of Goodyear Tire & Rubber Co. (GT), for instance,
have climbed 193% so far this year.
Plus, "manufacturing is the first to come back when you have an
economic recovery," he said.
"Not surprisingly, the two sectors the book highlights as
'leading the more positive sector reports among districts' were
real estate and manufacturing, among the hardest-hit sectors of the
economy and the two benefiting the most from government support,"
said Dan Greenhaus, chief economic strategist at Miller Tabak &
Co.
The Beige Book "supports the notion that the U.S. economy is
experiencing a slow recovery, with significant aid from
government-stimulus programs such as the first-time home-buyer
credit and the recently expired 'cash for clunkers,'" commented
Nicholas Colas, ConvergEx chief market strategist. "The report
reads like a blueprint for an economy that continues to require
both low interest rates and continued extraordinary monetary
stimulus."
Technology and energy are also sectors where Roberts sees
promise, saying the former can be a great cost saver for companies
and the latter likely to be stimulated by foreign demand as the
world industrializes.
Roberts also predicts a bullish, long-term secular trend in the
pharmaceutical trade, reasoning that as the country's population
ages there will be increased demand for drugs.