Transcripts

"Reviving the Economy"-Survival of the Stock Sectors

SUSIE GHARIB: It's still a matter of debate on Wall Street as to exactly when the U.S. comes out of recession. But, whether it's next month or by Christmas time, the economy will ultimately recover. And, when it does, certain sectors of the stock market will probably outperform others. As we continue our "Reviving the Economy" coverage, Suzanne Pratt takes a look at which sectors are likely to do best.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It's no wonder that Colgate Palmolive has done well in this recession. After all, hands still get dirty, even when the economy suffers. As the manufacturer of consumer necessities or staples, Colgate is part of what's called a defensive area of the economy. That also includes sectors like healthcare and utilities which prosper in a downturn. But with the economy soon in recovery mode, investors wonder which sectors are next likely to perform best. Stock market veteran Joe McAlinden has four he's watching.

JOSEPH MCALINDEN, CHIEF INVESTMENT OFFICER, CATALPA CAPITAL: The market overall is poised to move in terms of the Dow back up to 10,000 and possibly a little bit higher over the next six to nine months. But, I think that information technology and materials and financials and consumer discretionary on average will move percentage wise substantially more than that.

PRATT: According to Standard & Poor's, those four sectors historically have done well as the U.S. economy stops shrinking and starts growing again. It's all part of a classic sector rotation. Investors sell defensive stocks and snap up cyclicals. With more money on hand, consumers and businesses buy more stuff, everything from new clothes to new computers. Of the 10 sectors in the S&P 500, strategist Brian Belski says technology is best equipped to lead the stock market for the next year to 18 months because of its cash position.

BRIAN BELSKI, CHIEF MARKET STRATEGIST, OPPENHEIMER: We believe the credit markets while they have improved, they are not open for business. So, we want to try to find those companies with high cash balances and positive free cash flow that are able to self fund their operations. And, technology by far is the number one ranked sector positioned to do so.

PRATT: Market pros advise against trying to time a sector rotation. No one knows exactly when the recession will end and these cyclical plays could start to move well before that happens. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.