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These stocks will soon lead the market: Traders
After a tumultuous stock selloff that put all major U.S. indexes in the red for the year, some traders say that the most battered sectors of the market could lead the way on a bounce back.
Larry McDonald , managing director at Societe Generale, said monetary policy action from the Federal Reserve could drive some of this year's underperforming sectors higher by creating a weaker dollar.
"The surprise in the third and fourth quarter could very easily be commodities, names that have been really beaten up that would benefit from a weaker dollar," McDonald said. "I think the Fed has to get that dollar contained to put out this global fire."
The U.S. dollar (Exchange: .DXY) has risen almost 7 percent year to date. Meanwhile, commodities such as crude oil (New York Mercantile Exchange: @CL.1), gold (CEC:Commodities Exchange Centre: @GC.1) and silver (CEC:Commodities Exchange Centre: @SI.1) have fallen to multiyear lows this summer.
As a result of the commodities collapse, S&P 500 (INDEX: .SPX) sectors such as energy, utilities and materials have tumbled 19.5, 12.7 and 12 percent year to date, respectively.
But investors could soon be pouring money back into these sectors, agreed David Seaburg of Cowen & Co., specifically energy stocks.
"There's a lot of pent-up demand, a lot of money sitting on the sidelines, waiting to gravitate into energy," Seaburg said. "It's probably not til much later in the year, but when that occurs it's going to be fierce."
Seaburg also pointed to large technology company names that have previously led the market such as Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOGL), as well as large-cap biotechnology stocks.
"I think you're still going to have that group of high-growth names that lead the market continue to outperform," he said.
Shares of Facebook, Amazon and Google have soared this year, up 13, 20 and 62 percent, respectively. The iShares Nasdaq Biotechnology ETF (IBB (NASDAQ: IBB)) which tracks biotech stocks is up 11 percent year to date.
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