3 hot industries for stock investors in 2018
The hot industries for investors next year are ones that could benefit most from faster economic growth, lower taxes, more spending by companies and less government regulation, Wall Street stock gurus say. ❚ Topping the list? Financial companies, especially banks that lend to people and businesses; industrial companies that make airplanes, weapons and heavy equipment, or those that move goods, such as railroads and package-delivery companies. ❚ And don’t forget technology — the market’s top performer in 2017. Tech will remain strong, thanks to advances in artificial intelligence, robotics and cloud computing, more companies upgrading their tech infrastructure and the continued integration of tech into the workplace and people’s lives. ❚ This Top 3 was gleaned from a USA TODAY review of more than a dozen 2018 investment outlooks from stock market strategists at Wall Street’s largest banks.
Financials make cents
The obstacles that have hobbled banks and other financial services firms since the Great Recession appear to be lifting.
Companies that profit from lending money to consumers and helping people invest for retirement are poised to profit from an American economy that grew at a 3% clip the past two quarters and continues to perform well. Loan growth is expected to rise. Banks are also seen getting a boost from a lower corporate tax rate and the Federal Reserve’s slow and steady interest rate increases.
Banks’ performances will improve amid the Trump administration’s push to reduce regulations put in place after the 2008 financial crisis.
“The negative implications of excess regulation are finally unwinding,” wrote Brian Belski, chief investment strategist at BMO Capital Markets.
Bank profits will also rise along with interest rates. As borrowing costs increase, banks will be able to charge customers more for loans.
Tech rally redux
Just because tech stocks led the performance race in 2017 doesn’t mean they can’t keep going up.
While FAANG stocks — Facebook, Apple, Amazon, Netflix and Google-parent Alphabet — generated most of the buzz in 2017, the broader tech industry still has the key ingredients to keep rallying.
History shows rising stocks with mojo on their side tend to keep rallying when bull markets are in their later stages — like the current one, which is nearly 9 years old.
“The momentum right now is clearly with tech stocks,” wrote Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch.
Tech rallied 37% in 2017, the best-performing industry group in the S&P 500 stock index.
Ongoing trends favor tech companies. They sell a lot of mobile phones, software and services abroad, which will enable them to take advantage of a world where most economies are growing at the same time for the first time in a decade. “Technology,” Subramanian says, “is the most globally exposed sector.”
Automation on the factory floor also is a growth industry.
Industrial strength
The upbeat outlook for industrial companies — such as defense contractors, building products and machine makers — is a bet on a continuing global economic recovery. Corporations will also spend more to replace aging equipment and tech systems.
The money to finance the spending will come from lower taxes, a stronger economy and a coming change in tax rules. That change will allow companies to take a deduction for the full value of new plant and equipment upon purchase, rather than stringing it out over a number of years.
Stronger growth around the globe means companies will spend more on new machinery, see increased cargo demand on railroads and profit from the increased pace of automation.
This so-called “upgrade” cycle will be a boon for industrial companies, says David Kostin, chief U.S. equity strategist at Goldman Sachs.