The FRED Report

Financial Research, Education & Data

The FRED Report is not authorized, endorsed or affiliated with the Federal Reserve of St Louis and its FRED Economic Data

You are here: Home » Sector Review

Sector Review

This section of the website is of greatest interest to longer-term investors.  We publish the Sector Review each month around the middle of the month.

The FRED Report believes that a sector based approach to investing will lead to long–term success. Research from William O’Neil & Company, publisher of Investors Business Daily, suggests that a stock’s price action is typically attributed to the following: 

  • (a) 20% to the stock itself
  • (b) 31% to the overall market
  • (c) 37% the Subgroup the stock is in
  • (d) 9% the Group the stock is in
  • (e) 3% the Sector the stock is in. 
We show a chart of this below, and note that Sector ETFs are a reasonably good way to capture at least part of the C, D, and E, and correct stock selection in portfolios is augmented by getting these right. Another way of explaining this is that C, D, and E can, in many instances, be lumped together as “Sector” – so getting the sector right can be 49% of the battle.

 

Also include in the Sector Review Report is table where we list three stocks per sector that we believe will outperform the particular sector ETF and three issues we believe will underperform the sector ETF. 

Note, and this is IMPORTANT: this performance is relative to the ETF and not to the market Indexes

Also note, and this is EXTREMELY IMPORTANT: the preceding means that (A) stocks in the strongest sectors that we believe will underperform the sector ETF may still outperform the market indexes, and (B) may also outperform the strongest stocks in the weakest sectors. In most instances a diversified portfolio will contain stocks from each sector, even those that we underweight. An aggressive portfolio might wish to avoid stocks in the sectors we underweight, but there are plusses and minuses to this approach. The most important minus is that if we are wrong on our sector weightings, significant upside performance can be missed.

The ideas from the Sector Review are investing, and NOT trading ideas. Since trading ideas often come from oversold conditions, it is likely that the best short-term trading ideas are actually stocks we DO NOT like as investors.





Recent Articles

The Fred Report - Sector Review July 2018
The Fred Report - Sector Review June 2018
The Fred Report - Sector Review May 2018
The Fred Report - Sector Review April 2018
The Fred Report - Sector Review March 2018
The Fred Report - Sector Review February 2018
The Fred Report - Sector Review January 2018
The Fred Report - Sector Review December 2017
The Fred Report - Sector Review November 2017
The Fred Report - Sector Review October 2017
The Fred Report - Sector Review September 2017
The Fred Report - Sector Review August 2017
The Fred Report - Sector Review July 2017
The Fred Report - Sector Review June 2017
The Fred Report - Sector Review May 2017

 

 

 

Who is Fred Meissner, CMT?
Listen here: