10 Stocks That Could Lead the Next Bull Market: Morningstar

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Technology-focused stocks with high-growth expectations are no longer the darlings of investors, Morningstar data journalist Lauren Solberg and chief markets editor Tom Lauricella wrote in a recent blog post. Through Nov. 8, Nvidia was down 50.3% year to date, Tesla was down 45.7%, Alphabet fell 38.6% and Microsoft was off 31.5%. Only Apple was in line with the broader market, losing 20.9% this year. The bloggers noted that big bear markets in stocks usually lead to a change in the market's leadership. This means that investors trying to best position themselves for an eventual stock rebound should look elsewhere rather than in the rearview mirror. Recent weeks have been showing hints of a change in leadership. While so-called Big Tech stocks have continue to post losses — with the exception of the big post-inflation-report rally — winners have tended to be slower-growth, cash-generating companies, such as financials and health care companies. These stocks, rather than Big Tech, could be the favorites when the bear market ends, Solberg and Lauricella wrote.

The New Bull Market

For investors, the key question is what types of stocks will take the lead next. How long the current bear market lasts and what the economic landscape will be in a new bull market will be major factors in determining the characteristics of market leadership. According to Solberg and Lauricella, many observers say investors should expect a different economic backdrop from that of recent decades. That means an end to low inflation, low interest rates and long periods of economic growth. That does not mean, they added, that rates will stay high, and inflation is expected to decline, but on both fronts, a return to previous levels seems unlikely. So, what might new market leadership look like? Some hints emerged in the stock market's most recent bounce from Sept. 30 lows. With the exception of the big growth-stock rally that followed the better-than-expected October Consumer Price Index report, the market's gains since the end of September were paced by value stocks from the financial services, industrials, energy and health care sectors. See the gallery for the 10 companies that have led the Morningstar US Market Index since September.