By John Nyaradi
Newton’s First Law: An object that is in motion will stay in motion until an external force acts upon it. Weekly ETF winners in motion are:
ETF Winners for Week 1
SPDR Gold Trust (GLD): +4.9%
SPDR Oil and Gas (XOP): +4.8%
SPDR Home Builders (XHB): +4.5%
SPDR KBW Bank Index (KBE): +4.2%
These leading sectors far outpaced the major U.S. stock indexes as the Dow Jones Industrial Average gained +1.2% for the week and the S&P 500 added 1.6%. Home builders continued to show strength in the battered housing industry and financials, led by the regional banks, rallied. Bank of America (BAC) put on a stunning rally, climbing 11% for the week.
Gold continued its rally from its December lows, up 3.4% from its last quote in 2011.
Leading Sectors Week 1 [click to enlarge]
chart courtesy of www.stocksharts.com
Materials are a cyclical, economically sensitive sector, and strength here indicates confidence in an improving economy.
Financials have been largely battered by fear over the European debt crisis and strengh here indicates that perhaps the crisis is being brought under control. Further strength for the financial sector came last week from Federal Reserve comments/encouragement about how to help the housing sector with easier lending standards and converting foreclosed properties to rentals.
Consumer Discretionary is usually thought of as a defensive sector, but last week’s gains were largely driven by year over year improvements in retail sales.
Bottom line: A “look under the hood” at Weekly ETF Winners and leading sectors tells us that “risk on” assets were favored, particularly recently beaten down sectors like financials, materials and gold. Europe will continue to be a factor and next week brings the beginning of earnings season.
Disclosure: Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time. Wall Street Sector Selector is long XLF.