Getty Images

Is the bull run finally coming to an end? Many investors think so, including Steve Cohen, the billionaire hedge fund manager who said last week that we're in a late market cycle and returns over the next two years won't look so good. With the benefits of tax reform in the rearview mirror and with labor productivity slowing, others think that America's GDP, which expanded by 3.5 percent in the third quarter, will grow more slowly in 2019. For Jeff Mills, co-chief investment strategist at PNC Financial, that means adjusting his company's portfolios to take advantage of late-cycle opportunities — and to give more thought to what might happen when the bull becomes a bear. "I don't think it's going to come to an abrupt end," he said, "but growth will absolutely slow next year." Investors may already be anticipating a turn of events despite strong third-quarter growth. Since January the has fallen by 2.35 percent, its worst performance since the 2008 recession, while the Dow Jones Industrial Index is also down 2.17 percent on the year. The SPDR S&P 500 ETF Trust, which tracks the S&P 500 and is the world's largest exchange-traded fund, with $256 billion in assets under management; and the SPDR Dow Jones Industrial Average ETF, which has $22 billion in AUM, have dropped by 2.05 percent and 2.10 percent, respectively, year-to-date, according to S&P Capital IQ. U.S. markets have struggled — the S&P 500 and the DJIA fell on Friday by 0.66 percent and 0.73 percent, respectively, largely because of worries over trade wars and rising interest rates, said Kristina Hooper, Invesco's chief global market strategist. "Tightening can potentially asphyxiate economic growth, and there's potential for trade wars to get worse," she said. "Those two factors have impacted markets this fall." Going forward, it's going to be harder for companies to generate the same kind of earnings as they have been, while these two risk factors could cause the economic cycle, which she said is in the midst of moving from a mid- to late-cycle, to end faster than expected. "I still think the business cycle has some legs, but overtightening by central banks and trade wars could hasten the demise of the economic expansion," she said.

Stay in tech

Historically, investors have gravitated toward more defensive- and commodity-focused sectors in late cycles. The best-performing industries in 2007, for instance, were energy, materials and utilities, while consumer discretionary and real estate were two of the worst. However, Hooper said that because this cycle is so different from previous ones — it's going on nine years, and it was started by unprecedented monetary easing — old playbooks don't apply. Technology, which typically doesn't do as well later in the cycle, will keep outperforming, she said. Why? Because investors will be desperate for growth, and tech is one of the only sectors that's continuing to innovate and expand. However, it may not be the FAANGs — Facebook, Amazon, Apple, Netflix and Google — that lead the way. Some of these high-growth companies have tumbled recently, partly because of slowing user growth, privacy concerns and worries around possible regulation. All five stocks have fallen between 28 percent and 16 percent over the last three months. (Netflix has dropped the most, Google the least.)

Still, there are opportunities as the cycle nears its end, she said, especially in cloud computing, AI and other innovative areas that continue to grow. "You can't paint all of tech with the same brush," she said. "Investors should be cautious with the FAANGS, but there are selective buying opportunities ... in areas like AI, cloud computing and fintech as valuations look more attractive given the sell-off, and growth potential is high." PNC Financials' Mills is more partial to companies like Microsoft, Visa and Apple, even with the latter's underperformance. These companies have no debt and strong cash flows — net operating cash flow was $43 billion, $12 billion and $77 billion, respectively, at the end of their last fiscal years, according to NASDAQ — and should continue to do well as long as consumers continue to spend. (Investors can also take comfort in knowing that Warren Buffett still owns about $50 billion worth of Apple stock.)

Tightening can potentially asphyxiate economic growth, and there's potential for trade wars to get worse. Those two factors have impacted markets this fall. Kristina Hooper Invesco's chief global market strategist

For ETF investors the Vanguard Information Technology ETF may be a good way to play the sector. It's the largest tech ETF by assets: $22 billion in AUM, and Apple, Microsoft and Visa are its top three holdings. It's up 3.2 percent year-to-date, too.

Health-care opportunities

Another late-cycle sector to consider is health care, said Mills. It's one of the only industries that's growth and defensive as people need to look after their health, regardless of the economic cycle, while new innovations are helping boost earnings. It's also cheaper than the broader market. The sector is trading at 15.9 times earnings, which is slightly below its historical average of 16 times earnings, and below the S&P 500's 17 times earnings. He thinks there's still a slight chance that drug price controls get instituted, so he recommends being more diversified across the sector. Hooper is bullish on pharmaceuticals, biotech, hospitals and insurers. "Pharmaceuticals are a very good place to be with relatively attractive valuations, strong fundamentals, attractive dividend yields," she said. "Biotech also looks attractive and could benefit from M&A activity, while hospitals and insurers should benefit from midterm elections, as a Democratic House should ensure the continued existence of the Affordable Care Act." Analysts are keen on Pfizer and Merck in pharma and Biogen and Agios Pharma. Those who want that diversified exposure may want to consider the Health Care Select Sector SPDR Fund, the largest health-care ETF, with $18.8 billion in AUM. It's one of the best-performing health care ETFs, posting a 12.7 percent gain so far.

More moves for materials