Consumer Cyclicals are Hot Again; Why are Retailers Attracting Long-Term Investors

In a previous blog post we wrote about the strong performance of the consumer discretionary (cyclicals) sector:


Chart 1. The Fidelity Select Consumer Discretionary Fund (FSCPX) performs strongly in 2017

On the other hand, it seems to be important this year to select the right sub-sector within the large cyclicals group. For example, as we observed earlier,  media stocks turned negative, while the leisure sub-sector has turned red-hot.

A third investment choice to consider is the retail sub-sector, which is often overlooked due to recent weak earnings and store closures by brick-and-mortar retailers, such as Macy’s.

We argue here that while online retailers, such as Amazon, have gained market share, consumer spending overall continued to be strong. That’s why we like the Fidelity Select Retailing Fund (FSRPX):


Chart2. The Fidelity Select Retailing Fund (FSRPX) performs strongly in 2017, in part due to investing in both online and brick-and-mortar retailers.

Looking at the long-term picture makes it even more compelling to invest in the retail sub-sector:


Chart 3. The five-year chart of the Fidelity Select Retailing Fund (FSRPX) shows that a long-term bet on increasing consumer spending has worked very well.


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Gold Stocks Enter a New Bull Market

After reaching a multi-year low a year ago, the Fidelity Select Gold Fund (FSAGX) has now decisively advanced past a treacherous up and down trading range and started the initial stage of a potentially long-term new bull market.

The first rally came in August 2013, which signaled the end of the bear market for the gold sector. However, prices unexpectedly reversed the bullish trend in September following the highly publicized selling of gold assets by hedge funds, which also coincided with low inflation expectations.

In December, gold stocks revisited the June lows, but were able to hold this level creating a chart pattern that is known as the double bottom. From the December low the sector rallied strongly and has been making higher highs and higher lows, which is one of the hallmarks of a bullish trend. As the result, the Fidelity Select Gold Fund (FSAGX) is the best performing Fidelity mutual fund so far in 2014 with an outstanding 35.11% return.

We must caution investors that the gold sector can be highly volatile and investing in gold stocks is often regarded as highly speculative. Investing in the broader natural resources sector provides more diversification and may be more appropriate for a conservative portfolio (read more on the Fidelity Natural Resources Fund).


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New Investment Trends: Latin American Equities can Turn Hot Again; Municipal Bonds are Shining in 2014

Long time observers of the financial markets know that the top investment areas from last year are often become laggards the next year, and vice versa. This year is no exception. Last year’s market leaders, which include social media, biotechnology and solar energy stocks are struggling to gain momentum, while new investment opportunities are emerging in unexpected ways.

One of our favorites is the newly emerging bullish trend in Latin American equity markets. Economic and social challenges are highly publicized for countries in the region. However, the chart pattern for the Fidelity Latin America Fund (FLATX) is turning bullish. Markets can anticipate changes in underlying economic conditions 6 to 12 months into the future. If this is the case for Latin American stock markets, then this may be a perfect time to take initial positions.

The top panel of the chart below plots the ratio of FLATX and the S&P 500 and we can see the reversal of last year’s underperformance by FLATX. The bottom panel shows the bullish chart pattern of FLATX breaking a long-term downtrend, and after a few weeks of consolidation, beginning to move higher:


The second emerging trend is in municipal bonds. Investors got weary of the news last year both about the bankruptcy of the city of Detroit and the potential default of the government debt of Puerto Rico, which brought the municipal bond market down. But this year is different. The Fidelity Spartan Municipal Income Fund (FHIGX) shows a bullish breakout by making a new high above the resistance level:



The long-term chart of FHIGX shows that this emerging new trend in the municipal bond market can become a great way for investors to diversify:



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