By Caroline Valetkevitch
NEW YORK (Reuters) - Investors have been nervously waiting for a market correction since a big run up began in March. But the advice from top strategists: Stick with the winners.
Analysts speaking at the Reuters Investment Outlook Summit in New York this week argued the sectors that typically lead markets when the economy begins to recover are the best options for investors right now.
Those sectors are the ones that have outperformed since March: financials, industrials, and other cyclical names.
In the last few weeks, the market has topped out as investors took profits and reallocated funds to defensive-oriented names. But top strategists argued that this move is temporary, and economically sensitive sectors should continue to lead the way.
"We've been starting to do a lot more debate about this, between cyclicals versus defensives," said JPMorgan Chase's chief U.S. equity strategist, Thomas Lee.
"And in every region, the sort of switchover makes sense at different points. But in the U.S., we're still favoring cyclicals over defenses."
It's the early stages of a recovery, he said, and "the cyclicals got hit much harder during the bear market" than other sectors.
Since hitting 12-year lows in early March, the benchmark Standard & Poor's 500 .SPX index gained as much as 40 percent, but has traded mostly flat to lower in recent weeks.
In that time, the S&P's financial sector has gained 91 percent, while the industrials sector is up more than 46 percent. Energy is lagging a bit, rising 23 percent, and technology is up 44 percent.
All of these sectors serve as proxies for expected improvements in economic demand worldwide.
Abby Joseph Cohen, Goldman Sachs' senior investment strategist and president of Global Markets Institute, said she's keen on energy stocks as well as industrial metals and technology-related shares.
"When managers are confident, they start buying things again, including equipment, and they start doing investment in their companies. And so, we'd be looking at some of the technology-related areas for that," said Cohen.
Bill Lefkowitz, chief options strategist at brokerage vFinance Investments, also sees upside potential for technology. He sees high premiums -- the cost of buying an option -- in technology shares, which would suggest that investors are placing bets for a sustained upward move in the sector in coming months.
ENERGY'S DOUBLE-EDGED SWORD
Citigroup's chief equity strategist, Tobias Levkovich, said his firm has been overweight the energy sector since March. He also recommends industrial companies, particularly ones involved in capital goods and transportation, and the financial sector. Continued...
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