Intro

For the last several months, we have been discussing our expectations for economic slowdown fears to become more widespread and that a negative estimate revisions cycle had a near 100% chance of occurring.  Additionally, we have commented that our work has been suggesting that all things cyclical — Industrial Cyclicals, Commodity Cyclicals, Consumer Cyclicals, and Tech Cyclicals — would be hit the hardest and likely be underperformers as the S&P 500 ultimately falls into our next downside target zone of 3600-3500. 

We have had a lot of client interactions regarding our positioning forecast and have been asked what sub-industries (GICS L-4) should be avoided (being underweight) or could be shorted based on our work.  

So, in this note, we include the results of our deep dive into which areas are flashing the most unfavorable readings using the following proprietary analytical tools:

  • 8-panels/ASM
  • HALO

(see appendix for description of 8-panels and HALO)

Sub-industries (L-4) To Avoid or Short — Beware Cyclicality

Sub-Industry — Avoid/Short

Materials

  • Commodity Chemicals
  • Construction Materials
  • Aluminum
  • Div Metals & Mining
  • Steel

Industrials

  • Building Products
  • Electrical Comp & Equip
  • Conglomerates
  • Industrial Machinery
  • Trading Companies
  • Trucking

Consumer Discretionary

  • Homebuilders
  • Footwear
  • Distributors
  • Department Stores
  • Apparel
  • Specialty Stores

Technology

  • Semi Chips

Sector Recommendations

Sub-industries (L-4) To Avoid or Short — Beware Cyclicality

Please Note:

We would advise not adding to current positions and not yet putting new money to work in these the areas that were highlighted. 

However, if you currently own names in these categories, this is not an automatic sell recommendation. 

We would advise not having large exposures to these areas and to specific names as Brian’s work suggests they will likely be under pressure.  With that being said, if you like a name for a 1-3 year outlook, by all means please feel free to hold but be aware the immediate timeframe may be bumpy.

For the full list of names that are within the sub-industries mentioned please see the PDF here.

If you are more interested in the S&P GICS classification system, please use the following link:

Explanation of the S&P GICS Classification System

Disclosures (show)

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