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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Top 10 Fidelity Sector Funds For The Summer Rally

Fed chairman Bernanke’s comment last week stating that the Fed’s policy will be highly accommodative for the foreseeable future led to an across-the-board rally for the U.S. stock market. The market looks decidedly bullish, with many sectors breaking out to new highs.

On the other hand, we are in the middle of the earnings season, which is often associated with increased volatility. Given the current market environment, what are the best investment choices for Fidelity investors?

To answer this question, first lets look at the data. The table below shows the ranked list of the top 10 Fidelity mutual funds based on three-month return, a measure of price momentum.

Top 10 Fidelity Mutual  Funds

Top 10 Fidelity Mutual Funds

Source: FidelitySignal.com

Surprisingly, all of the Fidelity funds on the top 10 list are sector funds. This is highly unusual. Even a few months ago, we would have seen international funds (e.g. Japanese funds) or other investment choices on this list. Even beaten down sector funds, such as the Fidelity Real Estate Investment Fund (FRESX), are now turning bullish. Consequently, the data tells us that smart money is on U.S. sector investments right now.

The second observation is that the list of top Fidelity funds is highly diversified. In addition, all of the ten funds have returned more than 10% in the last three months, in spite of the recent market correction.

The current leaders are the Fidelity Select Automotive (FSAVX), the Fidelity Select Biotechnology (FBIOX) and the Fidelity Select Banking (FSRBX) funds. In addition, it is important to note that four out of the ten funds are related to the finance sector.

Companies investing in the consumer sector are also bullish. The best fund to play this trend is the Fidelity Select Retailing (FSRPX) fund.

For investors who are looking for emerging trends in technology, the Fidelity Select Software and Computers (FSCSX), the Fidelity Select IT Services (FBSOX) and the Fidelity Select Electronics (FSELX) funds offer new opportunities.

Buy/sell signals for Fidelity funds are available at FidelitySignal.com