Which Sector Should Investors Pay More Attention to Right Now?
This week, we speak with Christopher P. Englebert, founding partner and CIO of Englebert Financial Advisers on what he thinks is the most overlooked sector right now and some of the major news headlines he is following.
Inflation is on top of mind for investors; should they be concerned?
It looks like we have entered a new era with regards to inflation. Inflation, except for education and medical costs, really hasn’t been an investor concern during the last five to seven years. Now, investors realize we have had a quick, big jump in inflation, and they are seeing it everywhere. I believe that we are at a new normal with higher inflation rates. I don’t expect another huge jump in inflation in the next few years, but we are now at a higher level than previously seen over the last several years.
Do you think investors should still be worried about Delta’s impact on the markets?
History has shown that even the worst infectious diseases last one to two years. From my research and discussions with medical professionals, it looks like the Delta variant, although possibly more contagious, is not as severe. If the Delta variant follows the normal virus life cycle, it should not be a major factor in the next several months.
The Fed has been thinking about tapering by the end of this year. How do you think this will impact the markets?
The Fed has been signaling all through 2021 that they would like to taper by the end of 2021. I really believe that Fed tapering is not so much about increasing rates, but about providing liquidity for financial markets. Risk capital can almost instantaneously disappear, and investors can rapidly take risk o the table. This can create severe liquidity constraints. I almost believe that the Fed has quietly put in a new mandate that includes preserving liquidity in financial markets.
Which market and/or part of the market are you focusing on right now?
The healthcare sector was the focus at the beginning of the year with the vaccine rollout. However, probably the most overlooked sector right now is the biotech sector. This sector has greatly unperformed the broader market this year, yet I believe offers great potential. Major drug companies are loaded with cash from vaccine sales and are looking to make acquisitions to develop the next generation of drugs. Merger and acquisition activities could really heat up in the next several months.
What are some of the major news headlines you are following?
As we transition to the post-pandemic era, I am watching employment and the number of people heading back to work. I am also watching the impact of shortages and delays of goods and how that is impacting the consumer.
For the year ahead, what economic and market trends are you keeping your eyes on?
Like any major population and economic shift, the return to normal will look different than what people expect. Higher wages are hurting on the inflation side of the economy but are helping the consumer to afford a better lifestyle. Flexible work schedules look to be the norm now. However, employment churn will still affect employers and their ability to function. You may finally see employers really offer some great perks such as higher 401k matching contributions (maybe as high as 10%) to really try to keep key employees.
As the world continues to grapple with the pandemic, how do you see the market changing?
We were encouraged this spring by a broadening out of the stock market rally to include small-mid cap companies which were hurt during the shutdown. However, over the summer, the small-mid cap sector has traded sideways, waiting to see future economic consequences of virus variants and how fast the economy reopens. The story for 2022 could be that small-mid cap stocks finally reassert their positive trend as the economy continues to reopen.
[This article, which was originally published in an online newsletter on 10/27/21, was republished with permission from Nasdaq TradeTalks. Sign up here if you would like to receive additional Nasdaq TradeTalk features.]