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Relatively strong economic data, along with reassuring minutes from the Fed’s last meeting, seem to have dampened investors’ greatest fears. As a result, the near-term and medium-term outlook of several market sectors have greatly improved.
In accordance with the views that I’ve expressed over the last few months, recently reported economic data has shown that the U.SA. is not in a recession and will not experience one anytime soon.
Specifically, an index of U.S. services came in at a robust 55.3, meaningfully above the average estimate of 54. Meanwhile, “job openings” fell just 4% in May and came in 254,000 ahead of analysts’ average outlook. Finally, new jobless claims, as The Wall Street Journal explained, “still hovered near recent lows.”
All of this data is completely incompatible with the idea of a traditional recession happening now or anytime soon.
Turning to the Federal Reserve minutes, the central bank’s governing board “recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.”
Reading between the lines, I think that suggests that the Fed is likely to scale back its rate increases if inflation eases. And with commodity prices falling and the housing market pulling back, inflation is likely to drop further going forward.
Against that macro background, the four best market sectors are travel, renewable energy, infrastructure, and pharmaceuticals.
The Travel SectorRenewable EnergyInfrastructurePharmaceuticalsThe Travel Sector
Source: Shine Nucha / ShutterstockIn the U.S. and Europe, anti-coronavirus restrictions and intense fears of the coronavirus are firmly in the rearview mirror.
Meanwhile, even China is easing its restrictions, and the U.S. recently rescinded its requirement for travelers from foreign countries to present negative coronavirus tests before entering America. Finally, without a doubt, the sector is benefiting from very strong pent-up demand in the wake of the anti-coronavirus lockdowns that had been imposed in many regions.
Meanwhile, many consumers, thanks to the very strong job market, the government’s stimulus efforts, and the strong stock market in recent years, have enough money to travel.
As CNBC explained in a June 11 article, confirming my thesis, ” the hotel industry has bounced back alongside the larger travel industry thanks to pent up demand, delayed trips and increased consumer savings.”
Renewable Energy
Source: Proxima Studio / Shutterstock.comAs I’ve pointed out in other columns, European nations, China, the U.S., and many other countries are pouring a great deal of money into renewables. As a result, the renewables space is currently one of the best market sectors for investors.
In the wake of the Russia-Ukraine War, the EU now wants 40% of its energy to be generated by renewables by 2030. Meanwhile, China ” is set to install a record 156 gigawatts of wind turbines and solar panels this year, according to Bloomberg.” and “solar and wind” generated nearly 30% of America’s total electricity in April.
Middle Eastern and South American nations, Japan, and Australia are also pouring a great deal of money into renewables.
Finally, the proliferation of electric vehicles is going to require a great deal more electricity to be generated. As a result, because they are cheap, clean sources of electricity, renewables are going to be in high demand in the world’s developed countries.
Infrastructure
Source: ShutterstockAs I noted in a June column, “as of May 17, only $110 billion, or less than 10%, of the funds {from America’s bipartisan infrastructure law} had been allocated. Consequently, many infrastructure stocks are still poised to get a tremendous boost from the legislation in the months and years ahead.”
Among the initiatives set to be financed by the law are “roads and bridges,” water infrastructure, massive hydrogen projects, many EV chargers, and large electricity undertakings. Companies that benefit from such projects should do very well for the rest of this year and 2023.
Firms that own and operate EV chargers, such as ChargePoint (NYSE:CHPT) and EVGo (NASDAQ:EVGO), should also benefit from the proliferation of EVs, while companies that develop electricity infrastructure, including GE (NYSE:GE) and Quantas (NYSE:PWR), should also get a big lift from the increased demand for electricity spurred by the electrification of transportation.
Pharmaceuticals
Source: Sisacorn / Shutterstock.comMany small and medium biotech companies have tumbled due to fears that the Fed will raise interest rates to prohibitive levels. With the central bank showing that it’s not eager to follow that path and inflation starting to ease significantly, that situation is quite unlikely to materialize.
Another worry that I think negatively affected the sector since the beginning of 2021 was a fear that Congress would sharply regulate it. But the draft of the Senate Democrats’ prescription drug bill shows that its toughest provision would allow Medicare to negotiate over the prices of only ” 10 of the most expensive single-source drugs starting in 2026.” In other words, the lion’s share of drugs would not be affected at all by the legislation even if it passes.
The biotech sector should also be helped by reduced fears about coronavirus, as those worries had prevented many people from going to their doctors and having operations. Those phenomena, in turn, had greatly limited the use of many drugs.
On the date of publication, Larry Ramer was long GE stock and EVGO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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