Sector Rotation: Is it Time to Take Profits in High-Soaring Media Stocks?

According to economic cycle theory, the economy follows a regular cycle moving from recession to recovery, and back into recession over a period of several years. Historic studies have shown that when the economy starts to recover from a recession, the consumer discretionary sector (cyclicals) is often the first to make gains closely followed by technology and industrials.

While we have not had a recession since the stock market low in 2009, the strong performance of the technology, consumer cyclicals (see Chart 1.) and industrials sectors in the last six months have raised the possibility of starting a new market cycle without a serious correction.


Chart 1.

Starting a new market cycle without even a relatively small correction is a possibility, but would be very unusual. That is why we are on the lookout for early signs of a market pullback.

One of the cautionary signs is that media stocks, an important sub-sector of the consumer discretionary sector, reversed their uptrend today (see downgrade by due to multiple companies reporting a significant fall in advertising revenues:


Chart 2.

The strongest sub-sector in the consumer discretionary space now is the leisure sub-sector (see Chart 3.) with names like Starbucks, Las Vegas Sands, and Marriott. We think that leisure stocks are long-term bullish, but short-term overbought, ready for a pullback:


Chart 3.


Sector Rotation: Fidelity’s Select Funds Outperform the Market Indexes; Emerging Markets Continue Sell Off

Fidelity Select Consumer Discretionary Fund (FSCPX, last change: 1.18%)

The U.S. stock market regained the bullish momentum today with 82.5% of the Fidelity Select sector funds closing higher. The top gainer was the Fidelity Select Consumer Discretionary Fund (FSCPX, last change: 1.18%). FSCPX has returned 13.65% year-to-date handily beating the return of the S&P 500 index.

Fidelity Select Multimedia Fund (FBMPX, last change: 1.06%)

One of our favorite sector funds in 2013 is the Fidelity Select Multimedia Fund (FBMPX, last change: 1.06%). FBMPX is one of the top 10 Fidelity mutual funds based on the daily ranking provided by FBMPX holds an impressive list of media companies that generate broadcast, online and print content. It seems that content is king in 2013.

Fidelity Emerging Europe, Middle East Fund (FEMEX, last change: -0.68%)

Emerging markets continue to under perform this year. The newest addition to the list of funds in a bearish downtrend is the Fidelity Emerging Europe and Middle East Fund (FEMEX, last change: -0.68%). We continue to underweight investments in emerging markets and focus on the best U.S. sectors for generating investment returns.

Buy/sell signals for Fidelity funds are available at