The exchange traded funds most widely followed that represent the health care, energy, materials and real estate sectors are showing the most late-year weakness, based on price chart performance. Lots of factors are work. The most likely factor affecting all of these is the sense that interest rate cuts by the Fed have ended.
Breaking out sector performance can be deceptive: in some cases, it may that just one or two stocks in the ETF may be so underperforming that it weighs the entire group down more than might be expected. Nevertheless, these price charts are worth examining for any investor with funds allocated by sector.
4 Sector ETFs Showing Weakness.
Health Care Select Sector SPDR Fund (NYSE: XLV).
Thursday’s new low of $136 came on heavy volume and took it below the previous support of the mid-April low (the red-dotted line). The stock bounced back on Friday. Note that the 50-day moving average just crossed below the 200-day moving average for the first time on this chart.
This ETF contains 61 holdings in the health care industry. The largest companies include Eli Lilly, UnitedHealth Group and Johnson and Johnson. The recent fatal shooting of UnitedHealth’s CEO, Brian Thompson, has had an unsettling and disturbing effect on the entire group as a major reassessment of health insurance practices inevitably takes place.
Energy Select Sector SPDR Fund (NYSE: XLE).
Friday’s low end of the trading range reached down into the area of the early September low for the year. The drop from $98 in November to last week’s $84 amounts to a 14.28% loss from top to bottom. A close below the $82 level would be concerning to those who are long the stock.
This ETF has 22 holdings, the largest of which are Exxon Mobil with a 21% weighting, Chevron with a 15% weighting and Conoco Philips with a 7.99 weighting%. One significant factor may be the inability of the price of oil to rally, putting a damper on profit expectations.
Materials Select Sector SPDR Fund (NYSE: XLB).
From the near $98 peak in October to last week’s closing price of $85 is a 2-month drop of 13.26%. The stock has tanked to below the previous support from early July. The 50-day moving average is turning downward and looks ready to meet up with the 200-day moving average.
The Materials Select Sector SPDR Fund has 28 holdings including Linde which has a 17% weighting, Sherwin Williams with a 6.95% weighting and Air Products And Chemicals with a 5.70% weighting. The chemicals sectors makes up for the greater part of the fund with a total 63% weighting.
Real Estate Select Sector SPDR Fund (NYSE: XLRE).
This ETF chart is a little different: there’s not a new low and it’s not near a new low, but the price action is less than bullish. Thursday’s drop took it to below the 200-day moving average. The Friday rally to it back to above that level but just barely. The 50-day moving average is trending downward. The stock is below November’s low.
The fund holds 31 real estate investment trusts including Prologis with a 9.21% weighting, Equinix with an 8.59% weighting and American Tower with a 8.22% weighting. This group is the most likely of the ETFs to be deeply affected by a lack of future interest rate cuts and the possibility of eventual higher rates.
More analysis and commentary at johnnavin.substack.com.
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