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3 Sectors Leading This Market (Investors are Missing at least One)

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The US stock market is enjoying one of its strongest starts in recent history, with the broad indexes up nearly 10% YTD.

So, what is the best way to take advantage of this stunning bull market?

I believe the best opportunities are going to be found in the areas of the market that are showing relative strength. There are numerous spots in the market that are being carried higher, but the three I am sharing here encompass many of the broader trends influencing the moves.Zacks Investment Research

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Energy

The energy sector has quietly jumped to the top performing sector in the market. Over the last month it has rallied an impressive 9%, exceeding all the others. As the US and global economy show persistent strength in the face of higher interest rates, demand for oil is expected to remain high.

Furthermore, production cuts from OPEC+ and a secular decline in oil infrastructure keeps a lid on future production, further limiting supply, and keeping prices elevated.

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A few oil stocks are sitting on the Zacks Rank currently and appear to be compelling options in the current environment. Murphy USA (MUSA - Free Report)  and Sunoco (SUN - Free Report)  are two refining and marketing oil and gas companies that have seen strong appreciation in share prices.

Additionally, they both enjoy Zacks Rank #1 (Strong Buy) ratings, further boosting near term stock expectations.

The energy sector broadly has suffered over the last year or so, as the prices of oil have fallen significantly since the beginning of the Russia-Ukraine war. But now that the price of Crude oil has some momentum behind it, profits should begin to rise again.

A notable development is that the Energy Sector ETF (XLE - Free Report)  is on the cusp of breaking out from a long-term bullish technical pattern. If the ETF can produce a strong close above that upper bound, significantly higher prices could follow.

Finally, the XLE ETF also enjoys a Zacks Rank #1 (Strong Buy) rating.

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Technology

One of, if not the best long-term performing ETF has been the Invesco Technology (QQQ - Free Report)  product. The ETF has compounded at an incredible 19.3% annually over the last 15 years, more than 13xing investors’ money.

It doesn’t seem that this powerful long-term trend is near an end any time soon either – so investors can continue to invest with confidence.

Numerous secular technology trends are raging on including the digital transformation, cloud computing, Artificial Intelligence, and numerous other industries growing at breakneck speed.

But it’s not only the long-term that investors have to wait for as the technology sector is ripping higher this year and looks ready to continue higher as the economy has stabilized, productivity rises, and new technologies seep into society.

While there is a litany of fast-growing and exciting individual stocks within the tech sector, I remain steadfast in focusing on two well-known leaders of the group. Both Amazon (AMZN - Free Report)  and Meta Platforms (META - Free Report)  sit in industry verticals that are set to benefit from many of the technological trends. E-commerce, cloud computing, VR/AR, and digital advertising are all mammoth trends carrying these businesses higher.

Additionally, Meta Platforms currently has a Zacks Rank #1 (Strong Buy) rating, while Amazon has a Zacks Rank #2 (Buy). Both companies also have very higher 3–5-year EPS growth projections, with Meta at 19.5% annually and Amazon at 28% annually, putting them in a league of their own especially considering how mature they are.

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Image Source: Zacks Investment Research

Bitcoin

Since 2017 Bitcoin has returned nearly 10,000% percent to investors – that is a 100x return on investment. While of course, these returns came with considerable volatility, there are few assets in the world that have generated such wealth.

While Bitcoin is unlikely to maintain that speed of compounding as it is now well over $1 trillion in market capitalization, there are still market beating returns in its future.

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And more relevant today has been its exceptional returns over just the last year and new accessibility to investors with the introduction of Bitcoin ETFs.

I think that Bitcoin ETFs is one of the major developments in the history of the cryptocurrency and opens a massive market of investors who were initially hesitant to invest. This may sound farfetched, but I think the next major milestone for Bitcoin would be for its market cap to overtake that of Gold as they serve very similar economic purposes.

That would put the price of each Bitcoin at ~$700,000, about 10x higher that today’s prices.

As noted, I think the ETFs are a fantastic way to get exposure to Bitcoin as they take care of the major risk – security. I am most favorable to Blackrock’s iShares Bitcoin ETF (IBIT - Free Report)  as it is the second largest ETF, but much cheaper than the largest at a 0.25% annual fee.

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Bottom Line

For investors looking to use a diversified approach to riding this bull market, I would recommend diving deeper into these sectors. The options include picking up the ETFs, which give you easy access to the broader sector returns, or diving into the sectors and picking a group of leading individual securities. Or maybe some mix of these approaches.

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