1. U.S., Japan, and Europe are still out in front.
Developed markets continue to appear slightly more attractive than the rest of the world, where growth looks to have slowed.
Most of the advanced economies are improving and are in early- or mid-cycle phases, while many emerging markets appear to have rising recession risks.
Investors who are comfortable with the additional risk of increasing their allocation to one segment of the market may want to think about giving opportunities in developed economies greater weight in their portfolio, for now.
2. Stocks are the preferred choice of many.
The S&P® 500 Index has gained nearly 4% in September thus far, despite this month traditionally being the worst month for the market.
A recent Fidelity poll shows that an overwhelming percentage of investors who trade a lot like stocks—more so than cash or alternative investments like real estate—as the place to put their next dollar. Bullish investor and consumer sentiment may be a strong tailwind for stocks in the coming months.
However, not everyone is as ebullient about stocks. Some are neutral, while others are raising cash. For investors who are not as bullish but would like to generate income on stocks they own, a covered call strategy is one option.
3. Volatility is a possibility.
Geopolitical, fiscal, and monetary policy uncertainty threatens to stall the market’s momentum, with the possible outcome being an uptick in volatility.
Syria continues to be an X factor, albeit to a lesser extent compared with just a few weeks ago.
Another budget battle for the U.S. Congress is looming in the foreground. Our experts believe that the budget debate will be contentious; however, it is unlikely to dramatically affect markets.
Fed tapering—while on hold for the time being after the September FOMC meeting—could unsettle markets.
If rates do eventually rise on Fed tapering, investors may want to continue to consider short-duration bonds, floating rate loans,1 and companies able to grow their dividends. Note that floating rate loans are higher risk investments.
4. Consumer stocks could ride rising confidence.
One underpinning factor to the stronger U.S. economy has been that consumer confidence and spending are growing moderately. Seventy percent of U.S. GDP is dependent on consumption, and so more optimistic consumers are likely to open up their purse strings.
Globally, an unfolding consumer growth story may have promising implications for the consumer discretionary and consumer staples sectors.
5. Tech shows some resiliency; LED an opportunity.
During the down days of August, the NASDAQ actually declined less than its broad market counterparts. Is technology—a laggard in 2013—showing some signs of life?
Tech company earnings and revenue growth fell shy of Wall Street estimates during the first half of the year, but tech stocks continue to be inexpensive on a historical basis, and there may be pockets in the sector that are well positioned.
Our tech sector fund manager thinks light‐emitting diode (LED) producer stocks and makers of new smartphones and tablets may be buy candidates. Longer term, companies with a fingerprint in wearable technology might be worth exploring.