Cyclical stocks could outperform defensive assets for the second half of the year. Exchange traded fund investors can also target the more aggressive cyclical stocks through the growth style.
According to Goldman Sachs Group, cyclicals could outpace defensive, non-cyclicals for the rest of the year as the economy improves, reports Kristen Scholer for the Wall Street Journal.
“We expect Cyclicals, which trade at a 3 point P/E multiple discount versus Defensives (16x vs. 19x), will outperform as oil prices settle and rates rise in 2H 2015,” David Kostin, chief U.S. equity strategist at Goldman, said in a note.
Cyclical stocks, like materials, industrials, energy and technology companies, are more economically sensitive and do well when the economy is improving. With the Federal Reserve set to hike rates, the rising rate environment would signal a better economic outlook.
Additionally, after the steep sell-off in the energy sector, following the plunge in West Texas Intermediate Crude oil from June 2014, oil majors could be on a path to recovery.
Consequently, investors may target more cyclical U.S. stocks through growth-oriented ETFs. For instance, the PowerShares QQQ (NasdaqGM: QQQ) tracks the Nasdaq-100 and includes a heavy 53.1% tilt toward the tech sector, along with a 14.0% position in consumer cyclicals.