U.S. Sectors Trend: Cautious Gains Amid Mixed Catalyst

12/19/2010 Share 0 comments

U.S. sectors provide insight into the parts of the US economy that are flourishing or floundering. It plays an important role in asset allocation strategy such as MyPlanIQ Tactical Asset Allocation. MyPlanIQ tracks detailed weekly U.S. sectors trend movements. We use ETFs that represent each sector and present the results here. More details can be found in MyPlanIQ 360 Degree Market View.

The major U.S. sector funds eked out modest gains in the week ended on 12/15, with cautious sentiment reflecting a lack of confidence in the economic recovery despite recent data remaining upbeat. The euro zone sovereign debt crisis continues to be an irritant, with credit downgrade of Spain serving to deepen the worries.

Top Three Indicators

The top three funds (as ranked by trend scores) all saw a reverse in their recent up trend this week. The Energy Select Sector SPDR (XLE) eked out a weekly gain of 0.5%, as crude oil prices traded lower in part because the market was hamstrung by a stronger US Dollar and higher-than-expected crude oil inventory data released on Tuesday. The energy sector (XLE) has been a top sector year-to-date, but it’s unclear whether the positive momentum will continue into 2011. Despite emerging countries such as China and India are locking supplies to fuel their growth, the outlook for energy demand in 2011 in the U.S. remains tepid, reflecting the adoption of new efficiency standards and a structural shift in the economy to a less energy-intensive economy.

Industrials (XLI) has also been top sector this year, with the S&P 500 Industrials sector up 22% through 12/15. Since the industrials sector is an economically sensitive sector, companies in this sector tend to outperform in the earlier stages of an economic expansion. The positive momentum in this sector will likely carry through the first half of 2011, partly because emerging economies and business spending are leading the economic recovery. Many multinational companies in (XLI) are in a good position to capture the opportunity and benefit from the focus on infrastructure spending in emerging nations. With favorable economic fundamentals, (XLY) makes an attractive momentum play in 2011.

Bottom Three Indicators

The health care SPDR (XLV) had another solid week with a weekly gain 2%. Government data showed spending on health care continuing to rise and upward momentum could continue in the healthcare sector. Healthcare remains a red hot sector for buyout activities with increasing number of M&A news announced recently.

The utilities sector reversed its recent down trend, advancing 0.75% this past week on favorable output data. That said, defensive stalwarts such as the utilities sector might underperform and lag behind sectors such as consumer discretionary (XLY) and industrials (XLI) that have traditionally done well during the upswing of the economic cycle.

labels:investment,

Symbols:XLY,IYZ,XLI,XLB,XLK,XLE,XLF,XLP,XLU,XLV,SPY,QQQQ,IWM,MDY,EFA,VEU,EEM,VWO,IYR,ICF,VNQ,GSG,DBC,DBA,USO,LQD,CSJ,CIU,HYG,JNK,PHB,TLT,IEF,SHY,SHV,BND,AGG,MUB,MBB,