Short Term Pains Equal Long Term Gains
With the S&P 500 down nearly 3%, stocks have had a tough start in 2015. Macroeconomic forces are creating fear in the marketplace with investors choosing to sell now and ask questions later. The price of oil has fallen below $50 a barrel, 10-year treasury yields have fallen below 2%, and news of slow growth out of Europe has created a global growth scare.
These forces, which are seen to be dragging down indices in the short term, may actually prove to be long term tail winds for the markets. The lower price of oil puts extra spending money in consumers’ pockets, while lower interest rates help corporations and consumers lower their cost of capital, and finally slow growth in Europe increases the likelihood of increased quantitative easing by the ECB, which should promote European growth.
Companies that are likely to benefit from these trends are those that focus on the U.S. consumer with low valuations relative to their history, such as:
• Consumer discretionary stocks
• Media companies
• Select technology companies
Specific stocks we feel will benefit include Bed Bath & Beyond (NASDAQ: BBBY), Viacom (NASDAQ: VIA.B), and Facebook (NASDAQ: FB).
Companies that are at the risk of falling further are those that:
• Have large exposure to Europe and Emerging Markets
• Are exposed to the risk of declining energy prices and currency risk, such as oil drilling and oil services companies, industrial companies, and consumer staples
Examples of stocks potentially at risk include National Oilwell Varco (NYSE: NOV), General Electric (NYSE: GE), and Proctor & Gamble (NYSE: PG).
In addition, stocks exposed to these above risks that also trade at high relative historical valuations, are especially at risk.
Disclosure: Ideal Asset Management is long shares of FB, BBBY, and VIAB for its clients
All ideas expressed in this article are the opinions of Ideal Asset Management LLC.
Before trading on any of the advice in this article, consult with your financial advisor to
make sure it suits your financial goals
All investments carry the risk of loss