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Sector Positioning

Welcome back to another segment of Economic Track with Zac. This installment will focus mainly on sector performance and outlook. The stock market has recovered exceedingly well since the pandemic crash. This is mainly off the back of a reopening of the economy and improvements in economic data points (such as unemployment). Our analysis suggests that the reopening bull market may be overextended, and a correction may be due over the coming months. With this potential correction in mind, we are positioned in the energy, industrials, and utility sectors. The Investment Management Team noticed an oversold energy sector around the pandemic lows and built out most of the current position. The idea behind the energy position is energy demand may rise as the economy reopens. This would likely push the per unit price of different energy sources higher, increasing revenues for companies. Our analysis suggests the energy sector may be getting close to an overbought position in which the IMT may look to realize gains. The IMT is bullish on the industrials section for 2 main reasons: possible tailwinds from the current administration and modest past performance suggesting a potential favorable entry price. Although not passed yet, Biden’s infrastructure bill could be a tailwind for the sector. The bill is thought to be massive at around $1.2 trillion over the next 5 years. Given the macro correction we expect in the coming months, the utilities sector may be a place where the IMT finds value. Utilities are generally a defensive sector due to their inelastic demand. This defensiveness may help protect capital during temporary pullbacks in the market. Then, after the correction occurs, funds may be reallocated to potentially take advantage of a move higher. For more information and updates, please see our weekly blog posts every Wednesday afternoon. Thanks for tuning in.

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