Sector View: Back To “Normal,” Back To Basics

Don’t tell the mega-billionaires in Silicon Valley but the real winners of the post-COVID economy are old-fashioned banks, drug manufacturers, oil producers and leading consumer brands. And I think this is going to continue into the new year.

Remember the “K” shape that the economy and then the market split into back in 2020? At the time, everyone grabbed at the companies that could support a total pandemic shutdown: work-from-home stocks, telehealth stocks, home delivery retail.

That was the forward leg of the K, the one that pointed up to the stratosphere. The rest of the economy was the downward leg: restaurants, conventional stores, gas stations, office buildings, airlines, manufacturers.

This year, as it turns out, the high-tech leg got too bloated with the Fed’s free money to stay in the stratosphere. And the “old-fashioned” companies that suffered in the lockdowns are now hardened to survive just about any disaster.

Is it any wonder the Dow dropped just 10% this year? It’s still up 14% since the pandemic started. And it just isn’t as overweight the high-tech names that got ahead of themselves.

Just look at the S&P 500, where allocations to Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and company started getting extreme. It’s also still up 14% since the pandemic started . . . but it’s given back over 20% this year.

The broad market flew farther and is now coming more violently back to earth. The NASDAQ, where Silicon Valley lives and breathes, is up only 7% now since the pandemic start nearly three years ago.

Those companies will recover. But they need to start walking again before they’ll ever fly. Leave me the Dow, where all the biggest winners of the year are concentrated: Coca Cola (KO), Johnson & Johnson (JNJ), United Health (UNH), Merck (MRK), Exxon Mobil (XOM).

And that’s just the giants. Broaden your sights beyond the elite Dow 30 and the winners are in the “boring” leg of the economy. Sometimes boring is good. Start with the boring leg and give the sizzle stocks time to rest.