Sectors & Industries Overview
- The U.S. is in the late-cycle phase, characterized by tight labor markets, less accommodative monetary policy, and a flattening yield curve.
- Recession risk remains low, and the U.S. consumer backdrop is strong amid a low unemployment rate, accelerating wage growth, and manageable financial obligations.
- Corporate earnings growth in 2019 is expected to decelerate as businesses face margin pressures from higher wages, global demand remains tepid, and the boost from 2018 tax changes fades.
- The policy backdrop is highly uncertain, with the direction of monetary and trade policies unclear.
Global growth remains positive but has become more uneven, and many major economies have progressed toward more advanced stages of the business cycle.
Global manufacturing remains in expansion, but the outlook has deteriorated and activity levels have likely passed their peak.
China is in a growth recession, and policy easing measures so far appear insufficient to sustain a reacceleration.
China’s slowdown, in addition to global monetary tightening and trade-policy uncertainty, has weighed on the industrial sectors in Europe and other export-oriented economies.
Asset Allocation Outlook
Consistent with a maturing business cycle, asset class patterns may become less reliable, warranting smaller cyclical tilts and a prioritization on portfolio diversification.
Meanwhile, low recession risk implies it’s too early to have high conviction in extremely bearish scenarios.
After an unprecedented period of global monetary easing, the shift toward global monetary tightening has turned into a liquidity headwind that may cause assetmarket volatility to remain elevated.
Overall, we expect the late-cycle environment to provide a less favorable risk-return profile for asset markets than during recent years.
The Health Care Sector encompasses two main industry groups. The first includes companies who manufacture health care equipment and supplies or provide health care related services, including distributors of health care products, providers of basic health-care services, and owners and operators of health care facilities and organizations. The second regroups companies primarily involved in the research, development, production and marketing of pharmaceuticals and biotechnology products.
- Health Care Equipment & Supplies
- Health Care Providers & Services
- Health Care Technology
- Life Sciences Tools & Services
The Energy Sector comprises companies whose businesses are dominated by either of the following activities: The construction or provision of oil rigs, drilling equipment and other energy related service and equipment, including seismic data collection. Companies engaged in the exploration, production, marketing, refining and/or transportation of oil and gas products, coal and other consumable fuels.
The Utilities Sector encompasses those companies considered electric, gas or water utilities, or companies that operate as independent producers and/or distributors of power.
- Electric Utilities
- Gas Utilities
- Independent Power and Renewable Electricity Producers
- Water Utilities
The Real Estate Sector contains all REITs, with the exception of Mortgage REITs, (which remain in the Financial sector). Additionally, the sector includes Real Estate Management and Development services.
- Equity Real Estate Investment Trusts
- Real Estate Management & Development
The Financial Sector contains companies involved in activities such as banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage, asset management and custody, corporate lending, insurance, financial investment, real estate investment trusts (REITs), as well as companies engaged in real estate management & development.
- Capital Markets
- Consumer Finance
- Diversified Financial Services
- Mortgage REITs
- Thrifts & Mortgage Finance
The Communications Services Sector contains companies that provide communications services primarily through a fixed-line, cellular, wireless, high bandwidth and/or fiber optic cable network.
- Diversified Telecommunication Services
- Interactive Media & Services
- Wireless Telecommunication Services
The Consumer Discretionary Sector encompasses those industries that tend to be the most sensitive to economic cycles. Its manufacturing segment includes automotive, household durable goods, textiles & apparel and leisure equipment. The services segment includes hotels, restaurants and other leisure facilities, media production and services, and consumer retailing and services.
- Auto Components
- Diversified Consumer Services
- Hotels, Restaurants & Leisure
- Household Durables
- Internet & Direct Marketing Retail
- Leisure Products
- Multiline Retail
- Specialty Retail
- Textiles, Apparel & Luxury Goods
The Consumer Staples Sector comprises companies whose businesses are less sensitive to economic cycles. It includes manufacturers and distributors of food, beverages and tobacco and producers of non-durable household goods and personal products. It also includes food & drug retailing companies as well as hypermarkets and consumer super centers.
- Food & Staples Retailing
- Food Products
- Household Products
- Personal Products
The Materials Sector encompasses a wide range of commodity-related manufacturing industries. Included in this sector are companies that manufacture chemicals, construction materials, glass, paper, forest products and related packaging products, and metals, minerals and mining companies, including producers of steel.
- Construction Materials
- Containers & Packaging
- Metals & Mining
- Paper & Forest Products
The Industrials Sector includes companies whose businesses are dominated by one of the following activities: The manufacture and distribution of capital goods, including aerospace & defense, construction, engineering & building products, electrical equipment and industrial machinery. The provision of commercial services and supplies, including printing, employment, environmental and office services. The provision of transportation services, including airlines, couriers, marine, road & rail and transportation infrastructure.
- Aerospace & Defense
- Air Freight & Logistics
- Building Products
- Commercial Services & Supplies
- Construction & Engineering
- Electrical Equipment
- Industrial Conglomerates
- Professional Services
- Road & Rail
- Trading Companies & Distributors
- Transportation Infrastructure
The Information Technology Sector covers the following general areas: firstly, Technology Software & Services, including companies that primarily develop software in various fields such as the Internet, applications, systems, databases management and/or home entertainment, and companies that provide information technology consulting and services, as well as data processing and outsourced services; secondly Technology Hardware & Equipment, including manufacturers and distributors of communications equipment, computers & peripherals, electronic equipment and related instruments; and thirdly, Semiconductors & Semiconductor Equipment Manufacturers.
- Communications Equipment
- Electronic Equipment, Instruments &
- IT Services
- Semiconductors & Semiconductor Equipment
- Technology Hardware, Storage & Peripherals