As investors navigate their 2025 investment strategies, many are wondering whether they should invest in last year's winners or losers. Sam Stovall, chief investment strategist at CFRA, joined TheStreet to discuss how to position your portfolio in the new year.
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Full video transcript below:
CONWAY GITTENS: So you mentioned your goal for the S&P 500. What are some of the most attractive sectors on Wall Street right now?
SAM STOVE: Well, Conway, the interesting thing is that in history, many investors ask me at the beginning of the year if I should buy last year's winners or losers. And history says that it depends. If last year was bad, you'll want to own last year's losers. But if last year was a positive year and 2024 was a positive year, you tend to do better if you let your winners move on. That's how it has been since 1990. If you owned the three major sectors in equal amounts over the next year. If they had been the top performers the previous year, they would have outperformed the market 75% of the time and would have outperformed the market by about 300 basis points per year. Very good top performance.
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So, with that in mind, you'll want to hold on to communications services, consumer discretionary and technology. But I also add the fact that if you are a little nervous about technology, because technology has posted gains of over 30% in six of the last eight years. And if you're worried, gee, maybe I should add a little defensiveness to my portfolio. It's not a bad idea. A portfolio made up of 50% technology and 50% consumer staples since 1990 has returned 94% of the return of technology alone, but with 40% lower volatility. So for investors who are getting a little nervous, this could be a good way to help them sleep better at night.
CONWAY GITTENS: What about the basic materials? That was the only sector down in 2024. If we take the other side of the coin, history encourages us to let the winners move on. Do you let your losers lose?
SAM STOVE: Yes, you essentially do. I've been looking at the 12-month relative strength charts I create for materials, consumer staples and healthcare, and they've all done pretty poorly, but they're at very low extremes, more than a standard deviation if not. two standard deviations below the mean. So if you are a fan of mean reversion, these could be good opportunities to start biting. I wouldn't reverse the truck because historically it takes a long time for the inferior performance to really become a superior vehicle because there is a huge amount of drag overhead. James O'Shaughnessy, in his book What Works on Wall Street, shows that it is better to stay in high-momentum areas than low-momentum areas. But when things have been so affected, it would be good to start thinking about materials sourcing, consumer staples and healthcare as possible long-term opportunities.
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