These sectors will continue to beat the market, technician says
Investors will keep taking bets on sectors like energy and materials stocks in the intermediate term while shying away from financials and healthcare, according to Katie Stockton, chief technical strategist at BTIG.
That continues the trend in place since the start of the market rebound a couple of weeks ago where some sectors have been favored more than others.
Since Sept. 28, the S&P 500 (^GSPC) has gained close to 6%. The energy and materials sectors have outperformed the index while the healthcare and financial sectors have underperformed. According to Stockton, that pattern will remain intact.
Sector | ETF symbol | Returns |
Energy | 12% | |
Materials | 10% | |
S&P 500 | -- | 6% |
Industrials | 5% | |
Technology | 5% | |
Utilities | 5% | |
Consumer Discretionary | 4% | |
Healthcare | 4% | |
Consumer Staples | 4% | |
Financials | 3% |
Using a complex technical model, Stockton looked at various sector ETFs compared to the S&P 500. She then plotted the values based on their relative strength and momentum of that relative strength. Sectors in the bottom right quadrant are weakening and those in the bottom left are lagging the rest of the market. A sector that is the top left quadrant is improving, while those in the top right are leading the S&P 500 index.
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“As time passes, you get a natural clockwise rotation to this graph that shows how people are rotating between sectors,” Stockton explained. “Generally, up and to the right is a good thing.”
According to Stockton’s chart, technology, industrials, materials, and energy are all in positive locations. “All are gaining momentum relative to the broader market,” she said. “At the same time we're seeing previous leaders like consumer staples and consumer discretionary losing relative strength and losing momentum versus the S&P 500.”
Meanwhile, two sectors are in bad places: financials and healthcare.
“This is a 6-week view so it gives an intermediate-term sense of sector rotation,” said Stockton. “We will see additional rotation out of those previous leaders like financials and health care and additional rotation into the more oversold sectors of the market that include energy, industrials, basic materials, and selectively, within technology.”
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