Sector Rotation: Technology at Record High; Multiple Sectors Advance

Treasury bonds sold off last week due to a sudden spike in interest rates:

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.

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.

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:

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:

 

Visit fund ratings at FidelitySectorReport.com for more information.

 

Best Fidelity Fund of 2014: Fidelity Real Estate Fund (FRESX)

Oversold stock markets rallied around the world today due to multiple factors, including declining interest rates and reduced geopolitical threats. I’d continue to be very cautious with committing new funds to equity investments until we can see if the rally can sustain itself. With that said, it is worth noting the emerging new trends in the healthcare, retail and the real estate sectors.

As an example, the chart shows that the Fidelity Real Estate Investment Portfolio Fund (FRESX) is turning increasingly bullish. The blue arrow on the chart shows the buy signal that was issued for FRESX by FidelitySignal.com on February 11. FRESX is now the top-performing Fidelity fund of the year based on total return.

View investment strategies and buy/sell signals at FidelitySignal.com

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The Best Fidelity Funds to Invest in after the Fed Meeting

The Federal Reserve said in a statement today that it will wind down its bond purchasing program in October, but will continue to aim at keeping interest rates low for a considerable time. Initially, equity markets reacted positively to the news, but the rally faded by the close of the market session.

From the technical standpoint, the most interesting development was the Dow Jones Industrial Average hitting a new all-time high at 17,156, while the other major indexes were not able to follow through. Small cap stocks, which typically lead the market in the early phases of a growth cycle, are the weakest right now.

As money rotates into large-cap blue chip stocks, the Fidelity Large Cap Growth Enhanced Index Fund (FLGEX) may be one of the best ways to put fresh money to work in the current market environment:

 

Unlike what we have seen during previous market rallies earlier this year, not all sectors show positive momentum right now. Consequently, as we head into the seasonally weak October period, investors will have to be increasingly more selective. The technology and health care sectors show the strongest relative strength right now and barely corrected during the recent sell off. Here are two Fidelity funds that investors can consider using to overweight positions in these two large sectors:

 

While the Fed’s intention is to keep interest rates low, the yield on the long-term Treasury bond has started rising already and broke its long-term trend today:

 

As the result, the bond market sold off and most Fidelity bond funds retreated, as well. Should interest rates continue to climb, bond fund investors will be faced with a difficult situation: the Net Asset Value (price) of their funds can decrease, while they will still be liable for paying taxes on the dividends distributed by the funds. This situation may force more selling of bond funds, which can create a negative feedback cycle for the bond market. The trend reversal for the following two widely held Fidelity bond funds show the potential danger bond investors will face in a rising interest rate environment:

 

 

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

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Why Diversify into International Markets

The prospect of worldwide economic recovery in 2015 is already making investors rethink their diversification strategy. Equity markets often anticipate economic changes 6 to 12 month into the future, as market participants are taking positions ahead of time.

One of the best ways for conservative investors to participate in the renewed interest in international markets is via the Fidelity Diversified International Fund (FDIVX).  FDIVX invests 58% of its assets in Europe, but Japan and Emerging Markets carry large weightings, as well. FDIVX also invests 12% of its assets in the United States.

From the technical analysis perspective, the two-year chart of FDIVX shows a strong bullish trend that was interrupted by a correction only last June. For most of 2014 the fund moved sideways until the recent breakout to a new high:

 

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

 

Fidelity Convertible Securities Fund is a Solid Investment

The Fidelity Convertible Securities Fund (FCVSX) seeks a high level of total return by investing in convertible and preferred securities. The total return is achieved through a combination of income (the current yield is 2.16%) and capital appreciation.

The chart shows that FCVSX underperformed the broader market from February to mid May. Our expectation is that renewed interest in convertible securities will help FCVSX to resume its uptrend and that FCVSX will prove to be a solid investment in the coming months.

 

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

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Best Fidelity Mutual Funds for Investing in the Energy Sector

The gradually increasing price of natural resources and the prospect of worldwide economic recovery have resulted in the sector becoming one of the top investment areas. Fidelity offers several excellent mutual funds to take advantage of this long-term trend. Here, we highlight three of the top ranked natural resources funds (see ranking).

The Fidelity Select Natural Gas Portfolio Fund (FSNGX) is one of the top performing Fidelity mutual fund in 2014 with a 14.17% year-to-date return. The blue arrow on top panel of the chart shows that FSNGX has outperformed the S&P 500 index since January:

The Fidelity Select Energy Services Fund (FSESX) also shows a similar, very bullish chart pattern:

For investors who are interested in broad diversification across of natural resources, the Fidelity Select Natural Resources Fund (FNARX) offers an excellent investment choice:

 

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

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The Best Fidelity Funds Right Now May Surprise You

Volatility has increased in the equity markets in the last two weeks, which makes it confusing for investors to see where the market is headed. That is why it may be useful to take a look at the top 10 ranked Fidelity funds (ranking is provided by FidelitySignal):

To make sense of the current market dynamics, let’s focus on the Fidelity funds with green arrows in the weekly column. These are the investments that both make the top 10 ranking and also have increased their rank compared to a week ago.

On top of the list is the Fidelity Select Natural Gas Fund (FSNGX). The top panel in the chart below shows that FSNGX has a very strong relative strength (ratio of the the fund and the $SPY tracking index) compared to the S&P 500 index:

Our second example is the Fidelity Select Natural Resources Fund (FNARX). As noted in earlier blog articles, FNARX continues to outperform other equity sectors:

The third example is the Fidelity Real Estate Income Fund (FRIFX). We highlighted FRIFX as a top income investment choice for 2014 in previous articles and FRIFX continues to show a strong positive trend:

Now, let’s contrast our top  movers with the currently weakest sector, which is biotechnology (see FBIOX chart below):

 

In conclusion, while utilities and other defensive sectors are making gains, as well, the current market environment seems to favor natural resources and real estate investments.

 

Buy and sell signals are available at FidelitySignal.com

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Market Correction: Treasury Bond Fund is Trending Higher; Biotechnology Sector is at Oversold Levels and May See a Bounce Next Week

We noted in in the March 26 blog article that the sector rotation has intensified as we approach the seasonally weak April-May period. In the last two weeks the stock market sell off continued, which negatively impacted most equity mutual funds.

Long-term interest rates have also started to decline, which benefits the Fidelity Spartan Long-Term Treasury Bond Fund (FLBIX). The chart below shows the inverse correlation of FLBIX and interest rates (see $TYX, the 30-year Treasury Bond Yield Index on the top panel).

The biotechnology sector corrected the hardest in recent weeks. However, technical indicators show now that we have reached an oversold condition and a bounce is likely in the coming week:

 

Source: FidelitySignal.com

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Sector Rotation Intensifies as we Approach the Seasonally Weak April-May Period

“Sell in May and go away” is a well know Wall Street adage that warns investors to sell their equity holdings in May to avoid the seasonal decline of the equity markets. Will the adage prove to be true in 2014? After the outstanding returns of the last 18 months, is the U.S. stock market vulnerable to a serious correction?

We think that the risks for equities have increased and investors should be extremely cautious in this market. As we noted in previous blog articles, the sector rotation has started a week ago and a correction is under way in the previous market-leading sectors, such as biotechnology and gold. At the same time, defensive investments, including utilities and treasury bonds are in favor again. Geopolitical risks may be on the rise, as well, especially if the military conflict in the Ukraine escalates in the coming weeks.

Severe corrections are under way in the biotech and gold sectors:

At the same time, defensive sectors, such as utilities are gaining favor with investors:

Source: FidelitySignal.com

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Sector Rotation: the Banking and the Telecommunications Sectors are the Top Performers Today; Real Estate and Gold Stocks are in Correction

Markets rallied today due to positive economic data following the sell off yesterday that was triggered by Chairwoman Yellen signaling the possible end of the Federal Reserve’s Quantitative Easing program this year, which may be followed by interest rate increases next year.

The Fidelity Select Banking Fund (FSRBX) was the top performer today. The FSRBX chart shows the continuation of the multi-year bull market.

The Fidelity Select Telecommunications Fund (FSTCX) was the second best performer. The improving economy and innovative new cellphone and service technologies can become catalysts for this sector, which has underperformed the market since last October:

The Fidelity Real Estate Fund (FRESX) did not participate in the rally in a meaningful way today. The chart shows that after making impressive gains in 2014, FRESX is in a correction mode now. We continue to like real estate investments, since the improving economy should continue to be positive for both commercial and residential companies in this space.

While 80% of Fidelity’s Select sector funds gained today, the Fidelity Select Gold Fund (FSAGX) was one of the weakest Fidelity funds. Similarly to real estate, gold stocks had a strong run up in the last few months and now in correction mode. However, unlike real estate, we regard gold and related investment as purely speculative. On the plus side, FSAGX can be used to increase diversification and to hedge against geopolitical events.

Source: FidelitySignal.com

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