Malls over metals: trends to watch in the second half

The script since Jackson Hole's QE2 announcement last August has been midcap growth, commodities with an emphasis on precious metals and the corporate cash pile spending cycle kicking in. If it wasn't about Commodities, Industrials, Techs or Energy nobody wanted to be bothered with it.

I rode all those trends with you guys, and now I'm flippin' the script for the second half.

Here are the nascent trends I see right now and how I think they play out:

Big n' Boring - It took energy 3 months to extend its lead as the best performing sector of 2011 - and only 10 days to wipe that all out. The top performing sector year-to-date is now Healthcare, imagine that.

The Morningstar healthcare sector is up 13.4% for 2011, led by big moves in boring giant stocks like Sanofi-Aventis - the $100 billion company has seen a 22% gain in its share price since January 1. All the top-performing large cap ETFs this year are healthcare focused, you're just not hearing about them above the din of Fedhating and inflation predictions.

And Sanofi's not alone, by the way; Pfizer's up 18.5% this year! Pfizer! For the last ten years we were holding a mirror under its nostrils to see if it was still breathing. Roche, Glaxo and even JNJ are makin' moves. This is where the money is rotating to - not the Loud money, the Quiet but Large money.

And speaking of once-boring stocks, have a look at the Utilities sector. Over the past year it's lagged the rest of the market by more than 20% - but year-to-date it's pulled into second place.

This shift into boring is also a shift into big. It is imperceptible to many as they continue picking their spots on the names that had been working, but the data tells the story better than I can - over the last 13 weeks, the large cap core index is up 1.11% on a total return basis, this is versus a small cap core portfolio's loss of 2.02% on an apples-to-apples basis. Keep in mind that this is with virtually zero help from all those big bank stocks that aren't pulling their weight with dividends or upside performance.

Lastly, I want to get into the big techs real quick. These stocks cannot get arrested. This may be overdue for a change. I'm gonna tell you about three wicked smart market players that are onto this one:

1. The Goat is showing me charts of a great low-risk entry on Cisco here, although the company's upcoming earnings report may give him pause.

2. Vitaliy Katsenelson, one of the most brilliant and articulate value investors in the game right now has told me offline that to ignore the large cap techs here would be criminally foolish, as "boring" as they may be.

3. Derek Hernquist and I must be brothers from another mother, he and I are both hitting on this out-of-momo into Growth-At-a-Reasonable Price (GARP) rotation at the same time but from different angles. Here's Derek's observation.

Bottom Line: The sexy small cap trade that worked for 9 months straight is ceding dominance to big fat boring utes and pharmas, your advantage being that most traders don't yet know these names very well (or have forgotten them).

Malls over Metals - the US consumer is resurgent, just as the commodity consuming emerging markets are in the midst of inflation fights and a deceleration in infrastructure build-outs. The long-term outlook for emerging markets is great, but over the next few quarters I want reduced exposure to places like Brazil, India, China and the rest as they tighten interest rates and put the reins on their own capital markets.

While I'll be keeping my long-term investments in agricultural plays, none of the energy or metals stories will be getting my fresh cash. I'm off the metals while their "best customers" tighten up and I'm headed to the mall instead. The play here is consumers are now going to take over for the corporations and start to flex their remembered muscles at the cash registers in a meaningful way. If you believe as I do that not every retail dollar is going to be spent in the Apple store then you may want to do some shopping yourself.

It's also really important to understand that any appreciable oil pullback will be interpreted as psychologically positive for the consumer and that this will be reflected in the stocks. In fact, we may be seeing the beginning already: Last week, as gasoline and other consumption costs plummeted, the Consumer Cyclical sector was the strongest of all four Cyclical sectors (the other three being Financial Services, Real Estate and Basic Materials).

This consumer-over-commodity trend is highly unanticipated, almost no one will tell you that with 9% unemployment and still-depressed home prices there will be a second-half rebound for your friends and neighbors. The Old Men are still newslettering about structural unemployment and rubbing each others velvet satchels of Spread Eagle coins or whatever they're called.

Consumer plays are a bit tricky to play with ETFs, even though the XLY (Consumer Discretionary Spyder fund) is starting to outperform. I want to pick a footwear name, a restaurant name, an apparel name, maybe an auto retail name myself here.

The advantage you have is that there's a ton of money in coppers and steels and oils and such that needs to find less Asia-sensitive growth stories when it rotates out, those growth stories can be found "at the mall".

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