Fisher Investments Reviews Sector Leadership Looking Ahead

Transcript

Ken Fisher:

So, one of the most common and pointless questions that I'm asked is what sectors do I think are going to lead and lag over the next 18 months? And the reality is that if you have to ask me that question to get to the sectors, you then have to ask me that question both now and all along the way through those 12 to 18 months, as I may change my mind.

Because if you need my input to invest in those sectors now, you need my input to invest in those sectors as I might change my mind down the road; and in fact, you do change your mind as circumstances change. So, that's part of the active part of managing portfolios.

Currently, I believe we're in the latter stages— but not the end—of what's been a bull market that is a slightly unusual one because of the slightly unusual circumstances that we've been in from the beginning of Covid.

And in the bull market, which we're in now, as you're seeing this for the first time, approaching two years old in October, you get a reality where we're toward the back part of the bull market, but not with it being over. And in that, I don't expect initially major trends to change very much.

Let me say that this way. I think you know that from the beginning of this bull market—and actually for some time before that— from the beginning of the prior bull market at the bottom of the market during the short, sharp break of Covid,  Tech has done better than non-Tech. On days—not every day— but on most days, when the market is markedly up or markedly down— like a half a percent or more— not every day, but most days, Tech goes that same direction, but more so. So, if you believe the market's going up, you believe Tech should do pretty well. You get market up days, Tech leads; you get market down days, Tech lags.

As 2024 progressed, And as I said in prior videos early in the year, I expected value to start doing better relative to growth than it had been before. And that didn't really much happen in the first and second quarters. But in the third quarter of 2024, that's largely happened, with the exception of the fact that Energy—and I was completely wrong about this— Energy has continued to do worse than most value.

When we look ahead, we have an interesting phenomena, the phenomena being that so many people right now are of the view that what happens with the Fed is so important. And if you've heard me before on Central Bank, you know, I think that's less true than most people think. but they'll keep thinking that way regardless of what happens, because people have a hard time getting over their prior confirmation bias.

But the reality is that whatever you think is important about the Fed, what goes on with monetary policy outside of the United States would be just as important. If you think what the Fed does is important, then you also think that what goes on outside of the Central Bank is important with other Central Banks. And so, as I'm talking, people are waiting for the September 18th Fed rate cut— will it be nothing? Will it be a quarter of 1%? Will it be a half of 1%? Ooh, and they kind of missed the point that you're bank has already cut rates twice by a full half a percent.

But what I'm wanting you really to see is originally, when the Fed was hiking rates starting in 2022 and overseas Central Banks were hiking rates, the world was predominantly saying hiking rates is bad for growth stocks, and there's a whole rationale for why they thought that was true.

And if you listen to any of my videos at the time, I told you why I thought that was not true. Now, they're saying if Central Bank cuts rates, that's good for value stocks and bad for growth stocks relative, that actually should be true. And when I say it should be true, it should be true because value stocks are much more bank financing dependent than growth stocks.

Growth stocks have a cornucopia of ways to finance themselves through equity and otherwise. Whereas value stocks mostly need to borrow money to finance growth projects. And so, as short-term rates come down relative to long rates and banks lend more aggressively, the impact that benefits mostly companies on the value side. And so, you should continue to see this trend, I think, of value stocks closing the gap with the growth stocks that you've seen in the third quarter. I think it should continue off into the fourth quarter and through most of next year.

The real big question about next year is does the bull market continue or not? If the bull market continues, which I think it probably will, but I'll come back to that in a moment. If it continues, then the trends that have been in place, I think, largely continue, and I've just described those.

On the other hand, if we go the other way in 2025, then the stocks that are otherwise thought of as the defensive stocks should do best. And that's again, up market, down market issue. I'm not going to hang my hat heavily on what the market's going to do in 2025 yet because it's before the time of year where I normally make a year ahead forecast. I normally do that in December and right now, this is only September. So, we've got October and November to get to, and there's a variety of reasons why I do it in December.

But if you come back and listen to me when I do this in December, I'll tell you what I think is ahead for 2025, and that will play into the sectors that would do well or badly, because if the bull market continues, I think we have a continuation of the trends that have been in place; and if the bull market does not continue, then you move toward those others that I just mentioned, heavily dependent on defensive stocks like consumer staples.

So, thank you for listening to me. I hope you found this educational and useful. Thank you.

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