Third-Quarter Maxim: Shun Sector-Wide Buying and Seek Out Aggressors in Each Industry Group
The stock market in the third quarter slapped down investors who failed to heed this year's profit lesson: Buy stocks, not industry groups.</br></br>Just look at auto makers. Because the three stocks soared in the first half, many investors hopped on for a third-quarter jaunt. Instead, the group slammed into reverse. Autos finished dead last among 96 industries in the Dow Jones Equity Market Index, which rose 2.7% in the quarter.</br></br>But while General Motors slumped 27% and Ford slid 13.6%, Chrysler rose 9.5%.</br></br>The auto makers' third-quarter performances underscore some important trends that, analysts say, are expected to extend into the fourth quarter. First, stocks that are tied to the economic cycle, such as autos, generally fared worse than stocks that tend to maintain earnings in weak economic conditions. As investors grew increasingly disheartened about the pace of the U.S. recovery, they boosted their purchases of defensive stocks such as cosmetics and tobacco.</br></br>Second, though some sectors like autos performed poorly on the whole, individual stocks such as Chrysler proved resilient. Analysts say that in the current economic climate, careful stock selection is far wiser than sector-wide investing.