Party on: Hot sectors for 2015

The U.S. economic outlook for 2015 will continue to provide plenty of excitement for investors and with the major indexes making almost daily new highs, investors are left to wonder can this party go on and on….?

2015 New Years
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The stock market is the perceived barometer for assessing the health of the economy and with the Dow and S&P making new highs, the Nasdaq continues to play catch up – many are now convinced that the economy has recovered. Unemployment has fallen to 5.8 percent and inflation is running just a touch under 1.7 percent. Companies have been engineering their earnings – by cutting costs, supporting stock prices by borrowing money at historically low rates to goose share-repurchase programs and raising dividends – all strategies to keep the party going.

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2014 did see some outsized performance across a number of industry groups – utilities (+22 percent), financials (+14 percent), technology (+17 percent) and consumer staples (+13 percent) and while there is some concern about valuation – investors do not appear ready to back off.

So what to do in 2015?

There has been a lot written about where investors should be looking next year and which industries will provide the biggest bang for the buck. A quick view of the European landscape will do us well. It doesn't look like 2015 will be such a great year for the euro zone – especially when we the three biggest economies continuing to stumble. So you ask – why should we care? Because 40 percent of the S&P 500 companies do a fair amount of business in the zone and if they continue to stumble, then corporate earnings of these same companies will come under more pressure – at some point they will not be able to avoid the consequences of a weaker Europe.

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Some will then say – but so what? With global interest rates at historic low levels and global central banks plying the system with free money, the market can continue to move higher and probably will. Here at home, Americans will have to wait until January 27-28 when we will find out if the Federal Reserve has changed its mind and what they will do in terms of monetary policy – will they begin the process of raising rates and if so, when and by how much? January meeting is doubtful that they will anything other than start by just changing the language about what could possibly happen – essentially pulling a "Mario" as they jawbone the markets?

Current expectations are for late summer 2015 – any move before that will cause the market to come under pressure while the steady as she goes scenario would signal that they believe that the economy needs more time, causing investors to remain bullish and sending the markets higher. Any speculation that a move could come much sooner will create some turbulence for the markets in the early part of 2015 as investors decide whether or not they agree. Either way, the question remains: Which sectors will benefit the most? I believe that large-cap technology, energy, industrials and banking are all in for a good year.

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We have seen what technology companies have done — and continue to do on almost a daily basis — a recovering economy will be dependent upon the dramatic upgrades in technology that we have yet to see -- upgrades that will affect all aspects of our lives and businesses. In fact, UBS just announced that they are turning to artificial intelligence to advise and deliver personalized advice to some of their wealthiest clients. Now its going to get interesting … how will clients respond?

Energy. Yes, there is concern with energy prices falling that the industry will come under even more pressure. Morgan Stanley just cut it forecast for oil well into 2016, giving some investors and traders a reason to jump on to create more noise. Weakness in the sector will create a lot of opportunity and cause a lot of activity in the M&A space as large blue-chip energy companies scour the landscape looking for assets at bargain prices. Financials will be helped along by slowly rising rates, allowing for that sector to take advantage of "normalization. Industrial infrastructure names should perform nicely as global major public works programs take hold.

Commentary by Kenny Polcari, director of NYSE floor operations at O'Neil Securities. He is also a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.

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