Wednesday, June 8, 2016

Stock & Bond Sector Views

I thought it'd be a good time to check out where we are at in the markets with 5+ months in the books.  Let's take a look at the sector SPDR ETF's which are run by State Street. For anyone unfamiliar these are ETF's that represent the various major sectors within the S&P 500.

Here we have the data through 5/31/16 charting the various sectors versus the SPY Index Fund.  Some notable items are the out performance of the Utility Sector(XLU) with a 14%+ game YTD and the past year. Consumer Staples(XLP) have also been leading the market with utilities. It's obvious that investors have been seeking safer, defensive industries for awhile as uncertainty has persisted.

With the market on a great run since February we see that a few sectors have really been leading the charge with gains far exceeding the SPY so far this year. Energy(XLE) stocks have rebounded 11.68% along with the acceleration in oil prices. Yet we can see the punishment Energy has taken as it's still down 12% since last year But other notable moves are seen in the Financials(XLF) up 10% YTD, Materials(XLB) up 8.42%, and even Industrials(XLI) up 6%. These sectors generally move up when the economy is gaining steam.

A notable laggard has been the Health Care Sector(XLV).  Long considered a defensive sector, there is clearly not as much interest from investors since May 2015 as it trails 3.42%.  While there are a lot of factors as to why, some major reasons could be the ongoing affects of ObamaCare, and talk from presidential candidates coming down on drug company pricing.

Let's not forget about the very important bond sector. For some Bond Basics check out my recent article.

Here we can see Short term Treasuries(SHY), Long Term Treasuries(TLT), Investment Grade Corporates(LQD), and High Yield Corporates(JNK - mostly comprised of junk and below investment grade bonds).

Most interesting is the performance of TLT compared to all the other groups.  Over the last year the fund is up 10.22%, and 9.24% YTD. Clearly a lot of the gain has come from the last 5 months.  The same goes for LQD.  The ETF has seen the bulk of it's gains coming from this year alone as it's up 5.97%.  TLT is what makes me scratch my head the most. I guess for those looking to invest in government bonds the US offers much better yields and safety compared to say Germany where yields are much lower.

Investors over a longer period are still not warm to risky bonds as evident by JNK's -4.86% drop over the last year. Readers with good memories might remember the nice performance this ETF put in from 2012 to mid 2015. They have seen a nice bounce back this year, but I can only think with rates heading higher this is a reactionary move as companies with less than stellar balance sheets find it harder to obtain credit.

I think the bond sector is portraying the same picture as equities. It appears most investors are heading towards the safest debt instruments to protect capital.  It will be fun to watch where everything heads from here.

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