According to Scott Wren, a senior equity strategist with Wells Fargo Advisors' Advisory Services Group, those areas include the consumer discretionary sector, the technology sector and materials.
"When things are looking up and the economy is anticipated to be good, money moves out of those more defensive sectors like consumer staples, utilities and health care, and into the more economically sensitive sectors -- the consumer discretionary sector and industrials, materials," says Wren. "The consumer discretionary sector (includes) things we want, not need. When you think the economy is improving, the future is good, then you're more willing to purchase discretionary items like new furniture or a car or go on a cruise."
Putting the pieces together
Looking at the most promising industries in the context of the big picture is called "top-down" investing, an approach used by many fund managers.
As they investigate potential investments, investors should consider broad swaths of businesses and think about what they do and who buys their products and services. Further considerations include what's coming down the tax and regulatory pipeline, and what's going on within the industry itself.
For instance, consider energy companies. "We have natural gas beginning a long-term fundamental shift in the dynamics of production. What companies will benefit from that in the long term?" Fragasso says. "We have old steel mills being reopened to create pipe for natural-gas drilling and transmission, and housing is in a slow and painful recovery. So we'll just have to look at what segments of the economy have a good long-term prospect and which, by contrast, are cyclically depressed because of the recession.
"Take a look at some that may be ambivalent, like heavy-equipment manufacturers. Are they doing well in the U.S. farm belt, and are they doing well overseas? Take a look because they present a different picture. What companies stand to do better in the recovery than others? That's the way we have to look at populating our portfolio," he says.
At the same time, investors may want to skimp on more defensive plays, such as utilities and health care, or areas where people hide when the economy slows down.
There are few shortcuts when it comes to finding investment opportunities. Once you've identified the areas you think are going to improve over the coming quarters, the next homework assignment is researching the individual businesses to determine what to buy.
"There's no easy way. You can't just say 'OK, what mutual funds did well last year? I'll pick those,'" Fragasso says.
That would be a good strategy if past results were indicative of future returns. Unfortunately, they rarely are.