Cyclical stocks eyed to extend the U.S. market's rally

Wed Jul 13, 2016 12:55pm EDT
 
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By Rodrigo Campos and Noel Randewich

NEW YORK (Reuters) - Wall Street's rally, fed primarily by defensive stocks embraced by worried investors, may be spreading to some of the growth companies that more typically lead a market forward.

The move remains incipient - typical leaders like consumer discretionary companies, technology and financials continue to lag the utilities and staples that propelled the S&P 500 .SPX to record highs this week.

But investors have started to turn to shares of smaller companies and those in some traditional growth areas, such as consumer durables, as worry about global economic weakness and U.S. corporate earnings has subsided a bit - and as some of those typically high-priced shares seem more affordable than the defensive names.

If it materializes, the shift to growth would signal more confidence in the economy and more likelihood that the market could hold its highs and go higher.

"Our favored sectors looking into the second-half of 2016 are information technology, healthcare and consumer discretionary, three of the worst performing sectors year-to-date," said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.

Furthermore, the last 10 sessions have seen the small cap Russell 2000 index .RUT gain 11 percent while the S&P has risen 8 percent, as investors have also bought into the more volatile small-company space.

“Defensives have run their course. Professionals are warning investors from buying those stocks for the yield. That leaves cyclicals as the way to go for the market to keep rising," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh, who said she has been buying technology shares and also looking at industrials.

  Continued...

 
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 11, 2016.  REUTERS/Brendan McDermid