Sector Rotation: Technology at Record High; Multiple Sectors Advance

Treasury bonds sold off last week due to a sudden spike in interest rates:

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Initially, the stock market reacted negatively to the Treasury bond sell-off, but strong earnings by technology companies, such as Amazon, re-ignited the stock market rally.

The technology sector is the strongest performer right now, but the market rally is broad-based, which we think is long-term bullish for equities. Other sectors with strong momentum include materials, cyclicals, industrials, and financials.

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We’d like to highlight here the three leading investment funds in our survey of Fidelity sector funds, the Fidelity Select Semiconductors (technology), Fidelity Select Chemicals (materials) and the Fidelity Select Automotive (cyclicals) funds.

The charts show that the bull market advanced with virtually no interruption over the last 12 months. We think that the recent excitement about tax reform in Washington is not fully priced in yet, consequently, these investments representing the three leading sectors can continue to advance through December of this year.

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So far in 2017 investors favored high risk, high reward investments, and have been “buying on the dip”. To illustrate, we show here the charts of the Fidelity Select Defense and Aerospace (industrials sector) and the Fidelity Select Financial Services (financials sector) funds.

The arrows indicate opportunities for purchasing these investment funds after pullbacks:

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The energy, telecom, and consumer staples sectors continue to lag the market. The weakest investment in our survey is the Fidelity Select Multimedia fund that primarily invests in cable companies and content providers:

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Visit fund ratings at FidelitySectorReport.com for more information.

 

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Conservative Investments Lead the Market in 2016

After high market volatility in 2015, it is not surprising to see that investors are favoring conservative investments in 2016. We’d like to highlight here a trio of conservative sector funds, which show improving relative strength compared to the S&P 500 index.

The Fidelity Select Utilities Fund (FSUTX) returned an impressive 14.5% in the last three months, surpassing the 2.77% return by the benchmark Fidelity Spartan 500 Index Fund (FUSEX) in the same period:

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The Fidelity Select Telecomm Fund (FSTCX) is at a new all-time high level and returned 10.17% in the last three months:

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The Fidelity Select Consumer Staples Fund (FDFAX) reached an all-time high too, and returned 6.32% in the last three months:

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Read more about investment strategies at FidelitySignal.com.

 

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Real Estate Funds at All-Time High Levels

A stealth rally is under way in real estate equity and income investments, while most of the financial media is focused on developments around oil and other natural resources.

The Fidelity Real Estate Portfolio Fund (FRESX) is now at a new all-time high level surpassing the previous high reached in January of 2015:

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Our favorite investment in this space is the Fidelity Real Estate Income Fund (FRIFX) that is also at a new all-time high:

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Read more about investment strategies at FidelitySignal.com.

 

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Best Bond Funds for 2016

After the market turmoil in the second half of 2015, new trends have emerged in 2016. One of the important new trends is that the long-term Treasury yield index reversed direction and going lower:

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Lower long-term interest rates coupled with the strengthening U.S. economy makes bond investments attractive again. The Fidelity U.S. Bond Index Portfolio Fund (FBIDX) is a great way to participate in the new investment environment, because FBIDX invests in both Treasury and corporate bonds.

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One of our long-term favorites is the Spartan Municipal Bond Fund (FHIGX). This fund has been making steady gains since October 2015 and we believe that the improving economy should continue to strengthen the credit worthiness of issuers and increase demand for municipal bonds.

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Read more about investment strategies at FidelitySignal.com.

 

Capital Gains Distributions for Fidelity Funds are Available

Several Fidelity funds experienced large drops of their net asset values (NAVs) on Friday. The explanation is that Friday was the ex-dividend date for many Fidelity funds. The pay date for the funds is Monday, April 13. For investors who chose to reinvest the distributions automatically, the value of their holdings will be adjusted on Monday. For investors who chose not to reinvest, their investment account will be credited by the distribution amounts.

The full list of funds receiving dividends and capital gains distributions is available here:

https://www.fidelity.com/mutual-funds/prices-documents/distributions

Here are a few examples of Fidelity funds with large capital gains distributions:

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How can an Aggressive Growth Strategy Beat the Market in 2015 (continued)

Summary

  • We continue to track the performance of the FidelitySignal Aggressive Growth strategy (see details in previous article) in a difficult investment environment
  • Increased market volatility resulted in a sell signal for the materials sector fund, while the other components of the strategy continue to advance
  • As the next earnings season approaches, the economic effect of the strengthening dollar may cause additional volatility

The FidelitySignal Aggressive Growth strategy continues to outperform the market in 2015. The current asset allocation is as follows:

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Increased volatility in the materials sector resulted in a sell signal for the Fidelity Select Materials Fund (FSDPX) and the fund was removed from the portfolio:

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The other portfolio components, such as the Fidelity Southeast Asia Fund (FSEAX), the Fidelity Construction and Housing Fund (FSHOX), the Fidelity Select Medical Delivery Fund (FSMEX) and the Fidelity Select Consumer Staples Fund (FSDAX) have contributed to the strong performance of the strategy in 2015:

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Visit FidelitySignal.com for additional investment strategies.

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Global Equity Markets in Turmoil Due to Fears About Rising U.S. Interest Rates; Best and Worst Investments in a Highly Volatile Market

Long-term U.S. Treasury yields have been rising in the last four weeks, as traders anticipate the Fed to raise rates possibly as early as June. In addition, the dollar has continued to make impressive gains against all major currencies, as quantitative easing in Europe and Japan is under way.

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The potential for rising interest rates in the U.S. and the steep rise of the dollar has led to a sell off of equities, bonds and commodities around the globe.

The S&P 500 index has retreated from its recent high and now in negative territory for the year. In spite of rising volatility, the chart of the benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX) shows that the long-term trend for U.S. equities is still bullish:

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Another important development is that commodities and oil continue to deflate, reversing the short-lived rally in January:

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In light of the rising dollar, the bear market in commodities and weak economic conditions in international markets, it is not surprising to see the Fidelity Select Energy Services Fund (FSESX), the Fidelity Select Gold Fund (FSAGX) and the Fidelity Latin America Fund (FLATX) amongst the weakest performers year-to-date:

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The few sweet spots in the current market are sectors that are not sensitive to interest rates and rely on innovation to create growth. Perhaps the most notable is the health care sector, including biotechnology stocks:

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The dynamic interplay of equities, bonds, currencies and commodities is shifting market conditions again. We continue to favor a conservative, risk averse investment approach in 2015.

Read more about investment strategies at FidelitySignal.com

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