Randy Frederick, vice president of trading and derivatives with the Schwab Center for Financial Research, discusses where he sees the strongest upside in markets.
RANDY FREDERICK: We've had an outperform rating for quite a long time on financials. That has done exceedingly well, as you know, and it's mostly because we've seen interest rates head higher. We do think interest rates are probably going to go higher in the long run. And of course, that gives financials the ability to expand their interest rate spread. And that generates a lot of revenue.
And then we've also had an outperform on health care, which has done quite well as well. Because, again, under President Biden, it's likely that the interest in expanding health care coverage is probably going to be bigger than it was, say, under the Trump administration. And so there's a lot of opportunity there. And that sector has done quite well.
We have also seen, obviously, a pretty sizeable rebound in the energy sector. And we upgraded the energy sector in May. Even though we've had a huge rebound and it's been the leading sector thus far this year, we think it still has more room to run. Part of the reason for that is just simply while there's a lot of news coverage, and a lot of press, and a lot of discussion going on, and it'll continue, about all sorts of alternative energy sources, whether it's for automobiles, or power generation, or whatever that might be, that still makes up a relatively small segment of the overall energy production.
It's a good thing. It will probably continue. It will continue to grow at a very rapid rate. But in the scheme of the overall energy production, it's extremely small. So the reality is while electric cars are very intriguing and very fascinating-- I like cars a lot, so I talk about them a lot-- the truth is gas-powered automobiles are going to continue to be a very big part of what we need for power generation as well for the next several years. So the fact is that the energy sector just got beat up too badly last year. And when you're the-- when you're the worst performing sector, you're starting at a very low base, and that gives you the opportunity to become an outperformer.