Against a backdrop of extreme market volatility and prolonged recession, the 2009 IHS Global Insight recommended strategy ranks highest those sectors that are the least dependent on the business cycle, and that better retain pricing power; such as in healthcare and consumer staples in the United States and Europe. Next in attractiveness are telecoms and utilities, albeit more attractive in Europe and Canada than in the United States. The worst-performing sectors include financials and consumer discretionary, according to IHS Global Insight.

The U.S. energy and basic materials sectors are less attractive due to slowing demand, exploration, and drilling activity, combined with tight credit conditions and weak commodity and oil prices in 2009. In addition, the dividend yields and payout ratios from U.S.-listed companies have not been as competitive as those in Europe and Canada. One source of returns from energy may come from consolidation of smaller companies into larger ones, similar to trends that occurred in the materials sector. The large, healthy balance sheets of the majors will be used to gain share and access to new markets, while credit is tight.

Information technology is the largest sector in the market, and merits small overweight position in the United States, and an equal weight in Europe. When compared to other sectors, the growth of production volumes from IT goods and services will remain among the strongest in 2009; the software part will fare better than the hardware. In addition, payout ratios from IT companies continue to rise: the balance sheets of tech companies are generally in good shape, with a lot of cash, and are not directly affected by the credit crunch. Despite these positive attributes, the growth rate of spending on IT has passed an inflection point, and will slow significantly in 2009, in line with declines in overall business and consumer spending. This view constrains the investment weighting strategy for IT to be close to neutral.

The healthcare and consumer staples sectors retain the best attributes for an overweight position, largely due to their defensive nature. Along with telecoms and utilities, these sectors performed the best in 2008, and are expected to continue this leadership through much of 2009. The prospects for telecoms and utilities are also relatively positive, albeit more attractive in Europe and emerging markets than in the United States. Infrastructure sectors will benefit from government spending on economic stimulus, but the impact on relevant equity sectors will be larger in emerging markets than in the more established economies.

IHS Global Insight recommends an underweight in the financials sector, both in the United States and Europe. Some of the valuation metrics for this sector do look attractive, such as a very high-dividend yield, low P/E, and price-to-book ratios. The dividend yield is in peril, however, as payouts are expected to contract, and the E and book value in the denominator of the pricing ratios are still subject to significant downward revision. While banks and other institutions have already aggressively marked down the value of their assets, the quality of those assets are still under strain due to lingering weakness in mortgages and housing markets, and now from worsening consumer credit and commercial real estate. The old business model for the financial sector is now busted, while new sources of growth have not yet emerged.

The consumer discretionary sector—which includes retail, autos, and leisure—will be among the weakest in 2009, with additional bankruptcies expected to occur. Several segments within the industrials sector will also be vulnerable to slowing global growth, such as those exposed to the automotive industry, construction, and mining.