The Fidelity Defense and Aerospace Fund (FSDAX) and the Fidelity Select Telecommunications Fund (FSTCX) broke out from their trading ranges to new highs and turned bullish from the technical point of view:
The S&P 500 index continues to climb in September, in spite of worries about multiple potential trade wars:
As we highlighted in June (read article), the strong economy and increased consumer spending favor the consumer cyclical sector. That is why one of our favorite sector investments is the Fidelity Select Consumer Discretionary Fund (FSCPX):
A federal judge approved AT&T’s purchase of Time Warner today, which can lead to more consolidation in the industry. We think that this could be a catalyst for this dynamic an innovative sector to catch up with the rest of the market.
The Fidelity Select Multimedia Fund (FBMPX) has lagged most other sector funds in 2018, but we think that it can reverse the downtrend, as investors anticipate more mergers to come in the near future.
Low unemployment and a strong economy are boosting consumer confidence. Not surprising that the market anticipates that consumers will be spending even more on discretionary items, such as entertainment, travel and online shopping.
In our view, the best investment funds to play this trend will continue to be the ones that already perform well. We utilized the sector screen (provided by FidelitySectorReport.com) to identify the best candidates.
Top 3 Fidelity consumer discretionary funds:
The Fidelity Select Consumer Discretionary Fund (FSCPX) provides a diversified investment in the broad sector. We like FSCPX at this point because it is outperforming the S&P 500 index again and the chart also shows a positive technical setup.
The retailing sub-sector is the strongest within the cyclicals sector. The Fidelity Select Retailing Fund (FSRPX) is already at an all-time record level, but we think that it can go higher. Top holdings of FSRPX include leading companies, such as Amazon, Home Depot, Booking, and Netflix.
In our view, a newly emerging investment opportunity is the Fidelity Select Automotive Fund (FSAVX). After five months of consolidation, we think that the technical picture is improving and FSAVX can catch up to the other sub-sectors in the cyclicals sector.
The strongest-performing sector funds today in our momentum screen are related to the financial sector.
Brokers have been beneficiaries of deregulation in the industry and continue to outperform the market:
As traders anticipate an uptick in consumer spending, our new favorite in the financials space is the Fidelity Select Consumer Finance Fund (FSVLX). FSVLX holds investments in credit card companies, banks, and other consumer finance-related companies.
Banks, as a group, are also doing well relative to other market sectors. While interest rates are rising across the board, a potential headwind for this sub-sector is the recently flattening yield curve, which involves short-term interest rates rising faster than long-term interest rates.
Strong earnings and a potential breakthrough in the negotiations with North Korea made investors feel more cheerful and caused a broad rally in the stock market.
Equity markets around the globe rallied in recent days, but the U.S. market continues to be the leader.
Rising tensions in the Middle-East and the strengthening dollar resulted in the energy and natural resources sectors becoming the strongest performers in the last three months (see article):
Large-cap real estate stocks also rallied, as we highlighted earlier (see more):
We also like the bullish trends in technology, medical devices, and financials sectors:
Real estate stocks have been lagging the market due to concerns about rising interest rates. However, with long-term Treasury yields stabilizing in the 2.95 – 3.20% range, we see a new opportunity to look at the real estate sector.
The chart shows that the Fidelity Real Estate Fund (FRESX) broke out and cleared its 100-day moving average, which we use as an indicator of seasonal trends.
International real estate looks even more attractive, as the long-term bullish trend continues to be in place:
The long-term bullish trend of the Fidelity Real Estate Investment Fund (FIREX) remains intact.