Industrials And Energy Lead U.S. Equity Rebound In 2019

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Includes: AIRR, BGR, BUI, CRAK, DDG, DIG, DUG, ERX, ERY, FENY, FIDU, FIF, FTXN, FUGAX, FUTY, FXN, FXR, FXU, GUT, IDU, IFLY, IYE, IYJ, JHME, JHMI, JHMU, NANR, OIH, PXJ, RGI, RYE, RYU, SDP, SIJ, SPY, UPW, UTG, UXI, VDE, VIS, VPU, XLE, XLI, XLU
by: James Picerno
Summary

Leading the recent rally in the US market is the industrials sector, which has a sizable performance edge over the rest of the market.

The Energy sector has the second-best sector return so far in 2019, with XLE up 13.1% year to date.

Utilities have shown the weakest sector performance in 2019. Shares in this corner of the market are ahead by a relatively soft 5.1%, based on XLU.

The year-to-date rally in the US stock market has lifted all the major equity sectors, based on a set of ETFs. Leading the field: shares in the industrials sector, which has a sizable performance edge over the rest of the market.

The Industrial Select Sector SPDR ETF (NYSEARCA:XLI) has climbed a strong 16.5% year to date through Wednesday’s close (February 13). The ETF’s performance enjoys a moderate premium over the second-best sector return so far in 2019, currently held by energy shares. The Energy Select Sector SPDR ETF (NYSEARCA:XLE) is up 13.1% year to date.

The weakest sector performance in 2019: utilities. Shares in this corner of the market are ahead by a relatively soft 5.1%, based on the Utilities Select Sector SPDR ETF (NYSEARCA:XLU).

The stock market overall is posting a strong rally so far this year: the SPDR S&P 500 Trust ETF (NYSEARCA:SPY) is up 10.0%, as of Wednesday’s close - the highest since December 3.

One narrative said to be lifting stocks lately: renewed hope that the US and China will find a solution to the trade dispute. CNBC reports:

President Donald Trump suggested Tuesday that he might be open to postponing the current deadline of early March so that both sides can reach a deal.

“Markets always assumed the March 1 trade deadline was flexible, but this just confirmed it,” Tom Essaye, founder of The Sevens Report, wrote in a note. “Bottom line, the fundamentals are roughly balanced right now as there is optimism that a trade deal will get done.”

“Looking ahead, a trade deal could reduce concerns about growth and allow the 2019 rally to continue,” Essaye added.

Another bullish factor for stocks: expectations that the Federal Reserve will leave interest rates unchanged for the near term. Fed funds futures are pricing in high odds that the central bank will remain on pause for monetary policy for the rest of the year, based on CME data.

“It’s possible to sustain this momentum, as we still see factors in the backdrop that remain fertile like modest inflation, continued economic growth, and a healthy consumer,” advises Charalambos Pissouros, senior market analyst with JFD Brokers. “What we’re most concerned about is whether earnings growth can be sustained. That’s the real issue over the intermediate term.”

Indeed, Wall Street analysts have recently been warning of an “earnings recession.” According to data from FactSet, profits for S&P 500 companies are expected to slide by 1.7% on a year-over-year basis.

Perhaps, but so far the crowd’s inclined to emphasize the positive, and so, climbing a wall of worry is the prevailing trend.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.