3 Sectors For This ‘Stealth’ Bull Market

Brian Belski is chief investment strategist and leader of the investment strategy group at BMO Capital Markets. He has more than 24 years of experience in the investment industry, having previously worked as chief strategist at Merrill Lynch and Oppenheimer & Co.

In his current role, Belski provides strategic investment and portfolio management advice to both institutional and private clients. ETF.com recently caught up with him for his views on the U.S. stock market and which sectors look attractive.

ETF.com: What makes you so bullish on U.S. stocks?

Brian Belski: First of all, everything that caused the August pullback in the stock market we knew—there was no real big surprise that caused it. We think it was just about fear and emotion.

Secondly, we firmly believe any time you see major strategists from all the big banks drop their numbers at the same time after being much more bullish earlier the year, that's usually a pretty good contrarian signal.

Number three, when I go out and talk to my retail and institutional clients around the world, zero percent of them are expecting any kind of rally in the fourth quarter. The majority are expecting kind of flattish performance and/or negative performance.

Worries about the Fed, about commodities, about international growth and China have just kept everybody on the sidelines. We think earnings are going to be a little better than everybody else thinks.

People are going to be surprised on the upside. As the market starts to bounce here a little bit, you're going to have a catch-up trade happening and people are going to chase it higher.

This is more about momentum investing versus fundamental, but we're standing behind our 2,250 end-of-year target for the S&P 500.

ETF.com: What's your longer-term outlook for U.S. stocks?

Belski: We think we're six years into a 15- to 20-year bull market. We've been saying that for five years. At some point, we're going to see a big correction; we don't think that big correction has happened yet. Ultimately, there's going to be a lot more volatility surrounding the Fed, because the Fed hasn't moved yet. We're still worried about the reliance on monetary policy.

ETF.com: A 15- to 20-year bull run would be quite impressive. Is there precedent for that?

Belski: The run from 1982 to 2000 was 18 years. There were other bull markets that long between the late '40s and early '60s, so there’s a precedent to it.

By the way, this bull market is something that could actually be longer because people are doubting it. This is the biggest stealth bull market of my collective career. Nobody believes it.

Remember, bonds have been in a 33-year-long bull market. You're going to have a pretty deep unwind of the bond market; that could just elongate the equity bull market.

ETF.com: Are there particular sectors of the market you favor over others?

Belski: We're overweight financials, industrials and technology. On a near-term basis, consumer discretionary and health care can do really well. At some time in the near future, we're going to have more of an early-cycle rally, but for now, we're officially overweight financials, industrials and technology.

Editor's note: ETFs related to Belski's views are the SPDR S&P 500 ETF (SPY | A-99), the Financial Sector SPDR (XLF | A-90), the Industrial Sector SPDR (XLI | A-92) and the Technology Select SPDR (XLK | A-91).

Contact Sumit Roy at [email protected].