NexGen Sectors Lead the First Half of 2017

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Here we are at the mid-point of 2017 and investors aren’t sure what to make of the market. According to the latest sentiment survey from the American Association of Individual Investors (AAII), the number of folks who call themselves “neutral” is now 43.4%, which is the highest in nearly a year and way above the historical norm of 31%. These investors think stock prices will basically stay where they are for the next six months.

The worst part is that too many investors aren’t sure whether the market is going up or down, so they continue to miss out on wealth-building opportunities. That’s true overall, and it’s especially true when it comes to the NexGen sectors we’re making good money on.

Let’s start with the big picture. The tech-heavy NASDAQ gained an outstanding 14.1% in the first half of 2017. The S&P 500 was up a solid 8.2% with the Dow right behind at 8%. Even with those big first half numbers, I still see a lot of investors frozen about what to do next, and there is also a lot of outright skepticism – the word “bubble” continues to be murmured entirely too often.

The overall nervousness is even more confusing when you consider that we’ve just finished one of the least volatile first six months of a year in history. The largest pullback for the S&P 500 (from March 1 through April 13) was a mere 2.8%. That is the second smallest pullback during the first half of the year ever; only a 1.7% pullback in 1995 was smaller.

History tells us that a strong first half of the year leads to a strong second half as well. Going back to 1950, the S&P 500 has gained an average of 4.5% in the second half of every year. But when it was up at least 8% in the first half, the average second-half gain jumps to 7.1% with the median at 8.4%. Ironically, the high neutral reading on sentiment I mentioned earlier is also typically followed by stocks moving higher. That in turn moves more investors from the sidelines back into the market.

I know I harp on this a lot, but it’s because I continue to see too many people on those sidelines – or at least not as fully invested as they should be – because they are too worried about where the top will be. Instead, we are going to continue to focus on the trends and look to build on a good first half by making even more money in the second.

NexGen’s Outperformance

The headlines so far this year have focused on tech stocks, especially the mega-cap names that most investors have in their portfolios. For example, the Dow Jones Internet Index had a great first half, gaining 18.6%. Believe it or not, that still lagged some of the NexGen sectors we follow extremely closely.

Let me give you a great example: The Dow Jones U.S. Home Construction Index, which soared 23.5% in the first six months of 2017 as the demand for homes combined with low interest rates kept the index moving higher. What’s more, many analysts refuse to embrace this mega-trend, which is one more reason why old Wall Street will continue to underperform. The herd cannot get its head around the homebuilders because they are overlooking the demand for new homes from the largest demographic in our country: the millennials.

I am seeing this firsthand in Nashville, where I just bought a home. Houses are flying off the market, and most of the buyers are in their late 20s or early 30s. They are tired of throwing money away by renting and looking to take advantage of low rates and high affordability.

This will continue for a long time. There are three million more millennials than their post-war parents, and they’re getting ready to take the economic spotlight as they flood the workforce, start families and enter their prime earning years. One out of every three homebuyers this year will be a millennial, equating to nearly two million homes, and it won’t stop there. Once those homes are built, millennials will be itching to decorate in their signature fashion. I’ll give you one guess where they go to do it – online!

I actually bought nearly all the furniture for my new house online, sometimes with my phone. A few years ago it would have been considered crazy to buy a couch or mattress before ever testing them out. Honestly, it still seems a little odd, but I’m not a millennial and I think they’re on to something. It has worked out well and been very convenient.

Another sector that outperformed technology was lithium. The exchange-traded fund (ETF) with a basket of stocks that tracks the niche, Global X Lithium & Battery Tech ETF (LIT), hit a multi-year high in June and closed out the first half with a big 19% gain. After the very strong start to the year, the last two weeks have been riddled with profit-taking, and that just means buying opportunities are emerging during the pullback.

I’ve said it before and I’ll say it again: Lithium to me is one of the absolute best investment opportunities of the next decade. Again, Wall Street isn’t yet focusing on the way energy is stored and will be increasingly stored in the future. Global lithium ion battery production is forecast to grow by an unbelievable 521% between 2016 and 2020, and I’m already recommending some stocks in this powerful them.

We also saw in the last six months how our NexGen strategy works for both longer-term investing and shorter-term trading. The retail sector is a good example. The S&P Retail Index fell by 7.6%, but the Amplify Online Retail ETF (IBUY) rallied an amazing 30%. Retail itself is not dead, just retail as you have known it. Again, old Wall Street will focus on how companies like Macy’s (M) are crashing in front of our eyes, but they forget that the consumer still makes up two-thirds of the economy, so they must be spending their money somewhere.

As we head into the second half of 2017, the retail sector is a top area to watch, just not the same old names Wall Street is stuck on. You want to look ahead and invest in tomorrow’s next big winners today.


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