Finish strong in 2015.
In football, fourth quarter means decision time: If you're ahead, do you sit on the ball and run out the clock? If you're behind, do you drop back for the Hail Mary pass? Do you try some new plays to make things exciting? And if you're Tom Brady, do you bet on deflation instead of inflation? Forecasts for Wall Street's fourth quarter of 2015 have even more intrigue, because a winning score means a healthy boost for the portfolio. So where's the smart money headed in this year's last three months?
The Fed: 'Act as if.'
By now, you know the drill: The Federal Reserve, interest rate hikes, blah, blah, blah. No, it hasn't happened yet. "But I would encourage investors to act as if the Fed has already begun to raise rates," says Robert R. Johnson, president and CEO of the American College for Financial Services in Bryn Mawr, Pennsylvania. "From 1966 to 2013, the best-performing equity sectors in a rising rate environment were energy, consumer goods, utilities and food. Among the worst-performing sectors were autos, durable goods, retail and apparel."
Recession: It might return?
Hard as it is to believe that the Great Recession has been over for some time, it's harder to stomach the idea that we might see a brief rerun if foreign turmoil kicks up. "Things are slowing down everywhere, and the U.S. won't be unscathed," says David Twibell, president of the Custom Portfolio Group in Englewood, Colorado. "In fact, there's a decent chance the U.S. economy will tip into recession sometime in the next few quarters. If so, the U.S. stock market is going to go much lower than most analysts expect."
Move into a defense-meets-growth stance.
The Fed interest rate question drives just about every answer for how to handle the fourth quarter, yet some great opportunities exist to take advantage of up-and-coming stocks. These include WhiteWave Foods Co. (WWAV), says K.C. Ma, director of the George Investments Institute at Stetson University in Deland, Florida. "This is the leading organic, plant-based food and beverage company in the health food industry. We like the special niche they carve out in the basically defensive sector, which is not sensitive to interest rate hikes."
Turn your eyes to Russia.
You could put the "hot" label on Market Vectors Russia ETF (RSX). But Andrew Stotz, CEO of A. Stotz Investment Research, calls it "burning hot." Here's why: "The Russian ruble is again weak against the U.S. dollar, which should help Russian exporters as the prices of their goods become relatively cheaper." He adds that net profit margins are improving among Russian companies, and that this ETF has an enticing price-to-book ratio of 0.4. That means you pay $40 to invest in $100 of assets.
For Amazon, every day is Black Friday.
Amazon.com (AMZN) has killed it over the last 12 months, up 60 percent with no end to the climb in sight -- or is there? "Amazon will continue to be a great pick, no matter what happens with the markets this holiday season," says Paul Ebisch, a portfolio manager on Covestor and president of Auxan Capital Advisors in Springfield, Missouri. "E-commerce will continue to gain a larger piece of the retail market this holiday season, and Amazon will definitely be a big part of this."
Run that Marathon.
The words "energy stocks" and "ugh" may seem inextricably linked at the moment, but there may be a high-profile exception in Marathon Petroleum Corp. (MPC). It's actually up 20 percent from mid-January. "Marathon is one of the few energy stocks that has outperformed not only the broader energy sector this year, but also the broader market," says Katie Stockton, chief technical strategist for BTIG in New York. Marathon stock should resume its uptrend as momentum improves, she says.
Jump on the Wells Fargo wagon.
While other big banks continue to weather scandal and shenanigans, Wells Fargo & Co. (WFC) boasts the title of the world's biggest bank, with a market capitalization that hit the $300 billion mark this summer. "We like the traditional large commercial banks that are able to gain from rising interest rates or from widening interest rate spreads," Ma says. "These banks are positioned for a comeback once the Fed raises rates."
Go heavy on metal.
As with energy stocks, metals haven't fared well of late, but that means buying opportunities exist in the fourth quarter. "Industrial metals such as copper, zinc and aluminum have all made multiyear lows and could bounce back strongly," says Jonathan Hill, senior vice president-director of investments, wealth management for Gibraltar Private Bank & Trust in Coral Gables, Florida. "The crucial factor will be the outlook for global demand and more specifically, the economic outlook for China."
Many stocks will emerge as overpriced.
When Warren Buffett plays his tune, people follow him like he's the pied piper. That's practically literal, as the Oracle of Omaha opened up a recent Berkshire Hathaway (BRK.A, BRK.B) shareholders meeting by playing the ukulele in a video. And it was there that he expressed a somewhat jarring forecast for stocks into 2016. "If we get back to normal interest rates, stocks at these prices will look high," he told the gathering. But Buffett holds onto stocks for long periods, so don't expect his buy-and-hold strategy to change.
Millennial woes mean housing doldrums.
While existing-home sales for July hit an eight-year high, the recovery still feels tentative for some -- and you can either cite or blame millennials. Buying a home remains a far-off goal, given that student loan debt for the Class of 2015 passed the $35,000 mark. "Millennials will continue to rent and experience slow new-home formations as they live in Mom's basement and lick their wounds of large college loans and anemic job opportunities," says John O'Donnell, chief knowledge officer of the Online Trading Academy.
More From US News & World Report