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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Stock Market Correction Continues with a New Wave of Selling

The stock market started the second quarter with heavy selling. The S&P 500 index dropped by more than 2%:

 

Technology and consumer discretionary stocks led the sell-off, including Intel (down -6.07%), Amazon (down -5.21%), Netflix (down -5.10%) and Facebook (down -2.75%).

Not surprisingly, mutual funds with large holdings in these names declined the most today:

 

Investors were selling other high-risk assets too, such as biotechnology shares:

 

With the dollar no longer falling versus the major currencies, international investments in Europe and Asia are becoming less attractive, as well:

 

Remarkably, all sector funds closed down today. In our view, this rare occurrence may signal a significant shift in investor sentiment towards a more bearish stance.

The momentum rankings of Fidelity sector funds show that the defense sector and some sub-sectors of technology are the strongest relative to other sectors:

 

Furthermore, the charts below show that both the Fidelity Select Defense and Aerospace Fund (FSDAX) and the Fidelity Select IT Services Fund (FBSOX) stayed above their respective 100-day moving average.

 

We use the 100-day moving average to assess the direction of seasonal, or intermediate-term, trends. The only other Fidelity sector fund that is above its 100-day moving average is the Fidelity Select Utilities Fund (FSUTX):

 

Overall, in our assessment, most sectors that make up the U.S. stock market are turning bearish in the short to intermediate-term timeframe, which could lead to further downside risk.

 

View fund rankings at FidelitySectorReport.com

 

 

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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:

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

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

Read more about investment strategies at FidelitySignal.com.

 

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Sector Rotation: Technology Sector Outperforms in 2015; Avoid the Utilities and Natural Resources Sectors

Summary:

• The technology sector, led by Apple, semiconductor and large cap Internet companies, has become one of the leading equity sectors in 2015
• Rising interest rates resulted in a trend reversal for the utility sector
• The strengthening dollar and declining energy prices cause the natural resources sector to resume its decline

The Nasdaq index (where many of the market-leading technology companies are listed) closed above the historically important 5,000 level yesterday. This level has not been seen since the dot com bubble of 2000. This time around, we think that the bull market in the technology sector is sustainable and stock prices will go higher from here.

One of the best ways to participate in this trend for Fidelity mutual fund investors is by building a position in the Select Technology fund (FSPTX). The top portion of the chart below shows that the relative strength of FSPTX compared to the S&P 500 has turned positive in 2015, which is a very bullish sign:

Steadily rising long-term Treasury rates caused a sharp sell off in the interest rate sensitive utilities sector. The chart of the Fidelity Select Utilities Fund (FSUTX) shows that the sector is not participating in the stock market rally and has broken its long-term uptrend:

In a previous article we warned that it is too early to invest in the natural resources sector. In spite of the rally in January, this sector continues to be in a downtrend and we think that there are many better investment opportunities in this market.

Read more about investment strategies involving these funds at FidelitySignal.com

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The Global Equity Sell-off Resumes in February; Treasury Bonds Rise; Utilities are Holding in Bull Market

The stock market sold off today with an accelerated pace in part due to the weak PMI number from China. The benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX) crossed below its 100-day moving average, which is considered a bearish sign:

The weakest equity sector was the financials. The Fidelity Select Brokerage Fund (FSLBX) was down the most with a -3.52% loss for the day:

The weakest Fidelity international equity fund was the Latin America Fund (FLATX) with a -3.42% loss. Equity markets in Latin America have experienced a tremendous bear market for more than a year now and are severely oversold. We expect a relief rally to happen in the near future.

Long-term yields continued to decline and investors bid up bonds in a flight to quality. As the result, the Fidelity Spartan Long-Term Treasury Bond Fund (FLBIX) gained 1.12% today:

One of the few sectors that still remain in a bull market is utility stocks, which are considered defensive investments. The Fidelity Select Utilities Fund (FSUTX) lost -1.27% today, but the chart shows that the bullish uptrend for FSUTX has not been interrupted yet:

Source: FidelitySignal.com

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Sell signal: utility stocks can no longer lead the market higher

As we reported, the Fidelity Select Utilities fund (FSUTX, change: -1.14%) reached its 52-week high on November 8. It is disappointing to see now that one of the leading sectors of the fall rally is breaking to lower price levels. The stock market will need to find leadership soon, otherwise the traditional holiday rally may not happen this year.

 

Technical analysis screens and buy/sell signals are provided by FidelitySignal.com