Our outlook calls for US gross domestic product to grow at a much slower pace than Wall Street’s consensus estimate, leaving the economy vulnerable to external shocks. This economic uncertainty, coupled with deterioration in key technical indicators, suggests that the S&P 500 could be at risk of a bear-market correction.
Stocks have recovered from the selloff earlier this year, with the long-suffering energy sector and other cyclical groups enjoying an oversold bounce. The S&P 500 Industrials Index, for example, has rallied 15.1 percent since its low on Jan. 20, 2016, even though the sector’s net income from continuing earnings has declined on a year-over-year basis for three consecutive quarters.
Our skepticism regarding the US economy’s near-term growth prospects explains why the Wealth Builders Portfolio has no exposure to the industrial sector and only one energy stock, Occidental Petroleum Corp (NYSE: OXY), which trades above our recently instituted buy target. (See Crude Realities.)
We don’t expect to change the Portfolio’s conservative positioning anytime soon; as Elliott Gue explains in Not a Time to Buy Stocks, our hedges remain our top picks in the current environment.
However, we continue to do our homework on names that boast high-quality franchises and offer exposure to key secular growth trends.
Our bearish outlook has curbed our appetite for putting new money to work in the current environment, but this downtime provides the perfect opportunity to research names we’d like to add to the Wealth Builders Portfolio and Lifelong Income Portfolio on a pullback. Here’s a short list of recent articles that fall into this category: