Sector Rotation: Energy Services is the Best-Performing Sector

The comparison of the three-month returns of the 40 Fidelity Select sector funds shows a wide performance gap between the best and the worst sectors:

Investments in natural resources gained the most. The combination of the rollout of COVID19 vaccinations, expectations for additional fiscal stimulus, and a rebounding economy can continue to fuel the gains, in our view. In this group, the Fidelity Select Energy Services Fund (FSESX) is the top performer (Chart 1).

Chart 1.

Higher interest rates and the steepening of the yield curve benefitted stocks in financial services. The Fidelity Select Banking Fund (FSRBX) shows the best gain in this group (Chart 2).

Chart 2.

The rebound of economic activity, higher savings rates, and anticipated easing of the pandemic related restrictions can further increase consumer spending. Travel and other leisure investments are especially poised for a rebound. We think that the Fidelity Select Consumer Discretionary Fund (FSCPX) is positioned well for a strong performance in 2021 (chart 4).

Chart 3.

The weakest sector fund in our survey is the Fidelity Select Gold Fund (FSAGX), as the relative performance of gold stocks vs. the S&P 500 index (shown in the bottom panel of Chart 4) continues to trend lower.

Chart 4.

Click here to view the rankings of all Fidelity sector funds. The performance comparisons are updated daily utilizing the momentum screen at FidelitySectorReport.com.

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Market Rotation: Top 3 Sector Funds for Risk Averse Investors

Summary:

• A technical screen of all Fidelity sectors mutual funds shows that only three sector funds were able to make new highs after the late July selloff, while consistently outperforming the S&P 500 index throughout 2019
• In our view, these sector funds can continue to outperform in the last three months of 2019, while offering lower investment risks than other sectors
• The full sector screen is available at FidelitySectorReport.com

 

The S&P 500 index was not able to reach a new record high in September after the late July selloff:

 

To identify the best investment opportunities in the current market environment, we performed a momentum screen of all Fidelity select sector funds using the three-month total return. The screen showed that the Construction & Housing (FSHOX), the Wireless (FWRLX) and the Telecom and Utilities (FIUIX) funds are the leading investments right now:

 

We found that these sector funds were able to break out to new highs and continue to advance in spite of the recent stock market volatility and fluctuations in interest rates. We think that this trend is due to the continued flow of money into these sectors by risk-averse institutional investors, and will likely continue into early 2020.

 

Cyclical growth sectors can produce attractive returns when the market sentiment turns bullish. In our view, the Fidelity Select Computers (FDCPX) fund stands out in this category by being able to make a new record high after the July selloff:

 

 

 

 

 

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Black Christmas and the Crash of the U.S. Stock Market; Gold and Oversold Sectors Offer the Best Trading Opportunities

The S&P 500 index dropped 2.64% yesterday and lost more than 20% of its value compared to the recent peak:

 

In previous articles, we described that crash-like conditions were developing. In our view, we are witnessing a slow-motion stock market crash that possibly forecasts a global economic slowdown.

Yesterday, the panic selling impacted almost all asset classes, with the exception of gold and Treasury bonds, which are traditionally viewed as “flight to safety” trades.

 

In our view, the most oversold sectors will likely bounce in the coming days and may offer a short-term buying opportunity to aggressive traders.

To identify the most oversold sectors, we use the Relative Strength Index (RSI) indicator. When the value of the RSI is less than 30, we regard the investment as oversold (denoted with blue circles on the charts). When the RSI is less than 20, the investment becomes highly oversold.

Out of the 11 largest U.S. sectors, the energy, the industrials, the consumer staples, and the financials dropped the most yesterday, while also triggering the highly oversold condition:

The real estate sector is oversold, as well, and we think that this sector also has the potential for a short-term rally:

 

View fund rankings at FidelitySectorReport.com for more information.

 

 

 

 

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The Stock Market Reacts Negatively as Fed Raises Interest Rates; Oversold Sectors are Ready for a Bounce

The broadly followed S&P 500 index continued its slide and it is now below the February low:

The Fed’s comments in combination with rising fears of a global economic slowdown negatively impacted the credit markets, as well. The chart shows that the ratio of the 5-year and 2-year U.S. Treasury notes is below 1 now. This condition is referred to as inversion of the yield curve, which may signal that the risk of a recession is higher than previously thought:

Almost all sectors show a negative performance for the last three months:

Gold miners and utilities are holding up the best:

We think that highly oversold sectors, such as banking and energy services, are ready for a bear market rally:

 

View fund rankings at FidelitySectorReport.com for more information.

 

 

 

 

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Will the Stock Market Crash? Natural Resources, Industrials, and International Markets are Already in Bear Market Territory

The S&P 500 index broke below its trading range Friday, which is the latest sign of the deterioration of the U.S. stock market:

Investor pessimism is driven by the slowing growth of the global economy, rising interest rates, trade wars, the Brexit negotiations, and several other geopolitical factors. We think that we are at an inflection point and crash-like conditions can develop quickly.

A worrisome sign for us is the lack of sector leadership. Gold is the only sector that shows a positive return for the last three months:

While the Fidelity Select Gold Fund (FSAGX) has outperformed recently, the chart does not show a bullish price pattern yet. FSAGX will have to break above the long-term trendline to start a new bullish trend:

On the other hand, the chart patterns of the weakest U.S. sectors, such as energy and industrials, are very negative:

In a previous article, we described the turmoil in global markets. European and Emerging Markets continued to deteriorate since then and do not offer investment opportunities at this point in our view:

 

View fund rankings at FidelitySectorReport.com for more information.

 

 

 

 

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Aftermath of the Stock Market Correction: Defensive Sectors Lead the U.S. Market; Bear Market Worsens for International Equities

Rising interest rates and hawkish comments by the Fed caused a wave of deleveraging on a global scale. Investors pulled out rapidly from equities to reduce exposure, which caused the benchmark S&P 500 index to drop below its 100-day moving average:

The bear market in international equities, both Europe and emerging markets, accelerated to the downside:

Clearly, smart money is rotating into defensive sectors, while technology, cyclicals, and materials continue to underperform.

From the technical perspective, utilities look the best. The Fidelity Select Utilities Fund (FSUTX) made a new high yesterday, and we would not be surprised to see more investment money flowing into this defensive sector:

The relative strength for the telecom and the healthcare sectors is also positive:

The materials and the semiconductor sectors stand out as the weakest performers in 2018:

 

View fund rankings at FidelitySectorReport.com for more information.

 

 

 

 

 

 

 

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Sector Rotation: Defense and Telecom Sectors Break Out to New Highs

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:

 

View fund rankings at FidelitySectorReport.com

 

 

 

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The Stock Market is Climbing the Proverbial Wall of Worry

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):

 

View fund rankings at FidelitySectorReport.com

 

 

 

 

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Sector Rotation: Big Merger in the Media Sector is Good News for Investors

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.

 

View fund rankings at FidelitySectorReport.com

 

 

 

 

 

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Sector Rotation: Cyclicals are Outperforming Again; Top 3 Consumer Discretionary Funds

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.

 

View fund rankings at FidelitySectorReport.com

 

 

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