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Is it time to switch from manufacturing to services stocks?


“Manufacturing” was the darling for investors amidst the global pandemic last year. But now that restrictions are easing, and supply chain issues continue to make life miserable for manufacturers, Charles Schwab’s Jeff Kleintop says it might be time to switch to “services”.

Kleintop’s remarks on CNBC’s “Squawk on the Street”

On CNBC’s “Squawk on the Street”, Kleintop said the recent strength in services stocks indicate the momentum will sustain, making the sector a smart investment for 2022.

Services have been booming; they’ve actually been really picking up the slack from the weakness in manufacturing tied to the supply issues, and that’s the key. I think you do want to look at more service-oriented businesses now.

In particular, he picked financials and healthcare as two sectors within services that are likely to remain strong next year.

Investors are switching to services-oriented stocks

Kleintop quoted the price action in the stock market this earnings season to bolster his thesis that investors are switching from manufacturing to services-oriented stocks. He said:

Manufacturers have been beating, but their stocks often have been down on the day they reported because there’s still lingering concerns about supply chain issues. Service companies, on the other hand, have been beating, and their stocks have been going up. It’s a sign that may continue in Q4.

Despite many challenges, including supply chain constraints and macro headwinds, however, the benchmark S&P 500 index is still up more than 5.0% since the start of October. At 4,600, the index is trading at its all-time high.

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