Lawrence Meyers: 2015 is drawing to a close and it has not been a grand year for the overall market. The S&P 500 is down 2% year-to-date and the Nasdaq up a mere 4%. That performance isn’t fantastic, but most investors are probably happy if they escape the year with a gain.
2016 is going to be a difficult year for the broad markets, in my opinion. We have a lot of headwinds. Ninety-four million people have left the workforce, the most since Carter was president. Gross domestic product growth is weak. The U.S. has added more than $8 trillion of debt since 2008. Debt across the world is climbing. The “part-time” economy is increasingly becoming a reality. The threat of terrorism has now hit home. The world has an oversupply of oil. Many blue chip stocks are vastly overvalued. Earnings for companies with lots of cash are being goosed upward through buybacks.
All of this bodes poorly for the overall market. I believe 2016 will be a stock picker’s market. In this article, I will examine the market sectors that are most likely to do well in 2016. I’ll focus on individual stocks in another article.
Icahn on the Right Track
If you look at the stuff Carl Icahn has been buying, I think that gives you a clue of where to seek value. He’s seen many cycles, and he’s leaning toward recessionary stuff. I agree. So on a broad sector note, I would choose consumer goods. However, I would narrow this further to sub-sectors.
Household, paper and personal products is the first stop. Household products means non-durable goods such as cleaning products, detergents, disinfectants, brooms, mops, towels, disposable plates and cutlery. Personal products means cosmetics and toiletries. Paper products obviously means paper towels and napkins, disposable diapers and so on.
You have a lot of choices here, but I think the best broad play is a consumer staples ETF like the Consumer Staples Select Sector SPDR ETF (NYSEArca: XLP).
Good Times for Travel and Leisure
Despite many poor aspects of the economic situation, the travel and leisure sector has been booming. I think the trend will continue for a few reasons. First, the hotel sector has more demand than supply. That gives hotels pricing power. It also is good news for airlines and rental cars. With airlines now boosting margins by charging for every little thing, they are on a solid foundation.
I’d start with the PowerShares Dynamic Leisure and Entertainment Portfolio (NYSEArca: PEJ), which has transportation stocks covered, as well as exposure to things like food that you would buy on a trip.