Frustrated With Stocks? Here’s How to Profit From Pessimism

If you're frustrated with today's jittery financial markets, you're certainly not alone. Unfortunately there are no quick fixes to resolve the issues fueling the market's ups and downs --namely the European debt crisis, a shaky global economy, and U.S. political gridlock. But before you throw in the towel and unwind your positions into the recent weakness, Alec Young, global equity strategist at Standard & Poor's Capital IQ has some sectors to reconsider into year-end.

"We think the best thing (the Consumer Discretionary) (XLY) sector has going for it is extremely low expectations on the domestic economy," says Young. Just like the better than expected Black Friday sales, he sees more positive surprises ahead since the economic pessimism is "more than factored in."

For the record, FactSet research shows Q4 Consumer Discretionary sector earnings are seen growing by 4% vs 14% for the full S&P 500, with sales up 8% vs 7% for the index.

Young is promoting a similar GARP (Growth At A Reasonable Price) strategy in his affinity for the Tech Sector (XLK), which he thinks will "outgrow a pretty anemic overall economy" as companies strive to increase productivity. Instead of cherry-picking winners, Young's approach on tech is to own "the top 10 or 20 holdings" by market cap, which he says tends to "drive the bus" anyways.

By way of context, there are currently 72 stocks in the S&P 500 Information Technology sector, with the 10 biggest being, Apple (AAPL), IBM (IBM), Microsoft (MSFT), Google (GOOG), Oracle (ORCL), Intel (INTC), Cisco (CSCO), Qualcomm (QCOM), Visa (V), and Hewlett-Packard (HPQ).

And again, Young says "We think tech can exceed a very low bar of expectations."

It probably comes as no surprise that Young's final favored sector is a defensive hedge in the form of the Consumer Staples (XLP), which he says is "also a nod to the fact that Europe remains a massive wildcard."

Along that same line of thought, Young is avoiding Financials (XLF). He simply doesn't see value yet in the market's hardest hit sector, which fallen about 20% this year.

"We really need to feel that we're through the worst with Europe," he says, adding that Financials ''have the most to lose" if the sovereign debt crisis escalates.

"There isn't more uncertainty anywhere than in the financial sector," Young says. "Investors hate uncertainty."

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