Tags: cyclical | stock | retail | Gold

MarketWatch's Gold: Time to Taper Holdings of Cyclical Stocks

By John Morgan   |   Friday, 11 Oct 2013 12:34 PM

Investors should taper their cyclical stock holdings — ranging from department stores and restaurants to homebuilders — because the upside is baked in and the consumer is tired, according to MarketWatch.

Columnist Howard Gold noted both job and income growth are still mushy after years of the Federal Reserve's massive asset purchases.

"So, even if Fed chair-designate Janet Yellen is confirmed, it's unlikely more of the same easy money policy will produce better results," he wrote.

Editor’s Note:
5 Reasons Stocks Will Collapse . . .

Macy's CEO Terry Lundgren said at a recent conference that he observed consumer retail spending weakened in the second quarter.

“The consumer wasn’t spending in the second quarter. The higher income consumer has bounced back. That mid-tier consumer is under stress,” he stated.

“There’s just not enough job creation going on."

Retail analyst Rick Snyder of Maxim Group does not see that trend reversing. "I think this is going to be a fairly poor holiday season. I don't see anything coming next year that's going to turn that around.

Meanwhile, Gold said some bellwether cyclical stocks are overpriced. For instance, Hertz, United Continental and DineEquity — corporate parent of Applebee's and IHOP — had soared more than 1000% in the current bull market, but have only slumped 15 to 20 percent in recent weeks.

In the housing sector, another cyclical area, stocks like Lennar and Hovanian that climbed more than 1,000 percent from their financial crisis lows are now down sharply, Gold noted.

According to Gold, it's "obvious that the first movers — many retailers, homebuilders, and other early cycle consumer plays — have had their day. The easy money has been made, and it's time to move on."

His assessment is not shared by all market observers.

Sam Stovall, chief equity strategist at S&P Capital IQ, is predicting both cyclical stocks and commodities will benefit when the central bank does finally begin its tapering of $85 billion monthly bond purchases, Midnight Trader Newswires reported.

Stovall believes cyclicals could withstand higher interest rates that may be a by-product of Fed tapering, according to Midnight Trader.

"So when the Fed retests investors' taper temperature, even though past performance is no guarantee of future results, don't be surprised if these same sectors and asset classes end up running similarly hot and cold," Stovall said.

Dianne Lob, chairman of the private client investment policy group at Bernstein Global Wealth Management, said on the company blog that if the federal government impasse is resolved, some stock sectors will resume their attractiveness.

"Broadly speaking, we favor cyclical stocks like financials and housing-related shares, as the economic recovery continues to take root slowly," Lob wrote.

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

Related Stories:

Jim Paulsen: End of QE Could Be a Tonic For Stocks

WSJ's Lahart: The Time for Defensive Stocks Is Over

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