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4 Cyclical Funds to Benefit From a Stock Market Rebound

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The volatility in the U.S. stock market might have been a result of misguided and negative investor sentiment, asset management firm Blackstone noted earlier this week, per a CNBC report.

U.S. equities gained on the Jan 7 trading session, keeping up with Friday’s surge, as the three major indexes fared well. Higher-than-expected December job additions induced positivity in equity markets. The optimistic investor sentiment was also a result of expectations of an affirmative U.S.-China trade deal this week and a possible oil price surge.

Given the optimism, it might be a good idea to invest in a few cyclical funds at present to benefit from a probable stock market rebound.

Blackstone Expects S&P 500 to Step Up in 2019

Blackstone’s investment strategist Joseph Zidle is hopeful of stocks rebounding in 2019, noting that it just isn’t a recessionary environment. Blackstone is anticipating a 15% rise in S&P 500 in 2019. The three major Wall Street indexes have gained since the beginning of this year.

Therefore, Zidle is advising investors to invest in cyclical sectors such as technology, materials, energy and industrials since a cyclical equity’s price performance is affected by the trends in financial markets. These stocks tend to do well during a booming economy and cut back during a downturn.

Favorable Trade Pact Could Ease Wall Street

The need for the United States and China to find middle-ground has intensified, given the distressing effect of the trade dispute on the Chinese economy and American companies alike. Apple’s price performance last week gives an insight into the operations of American giants being affected by China’s economic slowdown.

Washington-Beijing talks that began on Jan 7 have witnessed willingness on both sides for a resolution to the ongoing trade dispute. U.S. put about $250 billion worth of Chinese goods under the tariff umbrella as Beijing retaliated with its own.

"The trade war is going to get resolved. We think we see a deal in the first quarter… China and the U.S. have an incentive to get a deal done," Zidle said. An affirmative solution to the trade war could easily boost the equity market.

Impressive December Job Additions

The surge in nonfarm payrolls for December 2018 ended on a positive note, as the United States added 312,000 new jobs against consensus estimate of 183,000 new jobs. Although unemployment rate rose to 3.9%, wages increased 3.2% on an annualized basis and 0.4% from November 2018.

The uptick in the number of new jobs, by the way, made a mockery of recession concerns, which was echoed in the stock market rally.

There Might be an Oil Rally Ahead

OPEC’s decision to slash oil production by 1.2 million barrels per day (bpd) from January could easily rally oil prices. Saudi Arabia has cut its production to 10.2 million barrels a day this month with an aim to lift crude oil price.

In addition, Saudi Arabia also initiated supply cuts to the United States marked by 60% fall in volume bound for U.S. between November and December to a little over 350,000 bpd, a Bloomberg report cited. The impact of the declined supply could be felt in U.S. by mid-February, when Saudi oil exports to U.S. might fall to its lowest in 3 decades, per the data by Department of Energy.

"I think oil prices find a bottom, and I don't think the conditions are nearly as dire as people are making them out to be," Zidle said. A probable rise in crude oil prices, thus, will help energy shares gain traction.  

4 Mutual Funds to Buy

Given the optimistic projections by Blackstone and the encouraging factors that are pointing toward a bullish stock market, it might be prudent to invest in few mutual funds from energy, technology and industrials sectors.

We have selected funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging three-year returns. Additionally, the minimum initial investment is within $5,000.

We expect these funds to outperform peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Industrials (FCYIX - Free Report) seeks capital growth by investing 80% of its net assets in companies that are engaged in manufacture, distribution, supply or sale of industrial products, equipment or services. The fund carries a Zacks Mutual Fund Rank #1.

This Zacks sector – Other product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FCYIXhas an annual expense ratio of 0.77%, which is below the category average of 1.18%. The fund has three and five-year returns of 8.51% and 7.33%, respectively.

Invesco Technology Fund Investor (FTCHX - Free Report) seeks capital growth by investing 80% of its net assets in companies that are engaged in technology-related industries. The fund carries a Zacks Mutual Fund Rank #1.

This Zacks sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

FTCHXhas an annual expense ratio of 1.19%, which is below the category average of 1.31%. The fund has three and five-year returns of 12.52% and 12.56%, respectively.

Red Oak Technology Select (ROGSX - Free Report) seeks capital growth by investing 80% of its net assets in companies that are engaged in the technology sector. The fund sports a Zacks Mutual Fund Rank #1.

This Zacks sector – Tech product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

ROGSXhas an annual expense ratio of 0.97%, which is below the category average of 1.31%. The fund has three and five-year returns of 20.70% and 16.83%, respectively.

T. Rowe Price New Era Fund (PRNEX - Free Report) seeks capital growth by investing more than 70% of its net assets in natural resources companies that are engaged in the technology sector. The fund carries a Zacks Mutual Fund Rank #1.

This Zacks sector – Energy product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.

PRNEXhas an annual expense ratio of 0.69%, which is below the category average of 1.41%. The fund has three-year returns of 4.77%.

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