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S&P500 Sectors and Stock Rotation - The Current View
S&P500 Sectors and Stock Rotation - The Current View
August 2020
August 2020
There are three sector ETFs that have outperformed the S&P-500 Index over last 12 AND 3 month periods. These are the Communication, Consumer Discritionary and Technology sectors. While Financial and the Enerrgy sectors have been the worst performers over the past 12 and 3 month periods.
Sector Relative Rotation Outlook
Sector Relative Rotation Outlook
The five week tail Relative Rotation Graph (RRG ®,) breakdown shows the Materials and Consumer Discretionary ETFs outperforming with strong momentum (top right quadrant), while Technology and the Communication Services Sector ETFs continue to out perform but with a marginally diminishing momenum. The Industrial Sector ETF has been showing rising momentum (top left quadrant) through the last five weeks, however, it is still in the relative under performance territory.
Relative Rotation Graphs (RRG) explained here
Alpha Sectors
Alpha Sectors
Technology, Communications and Consumer Discritionary Sectors meet our 12 & 3 month and RRG outperformance criteria.
Technology, Communications and Consumer Discritionary Sectors meet our 12 & 3 month and RRG outperformance criteria.
Technology / S&P-500 relative performance
Consumer Disc / S&P-500 relative performance
Communication / S&P-500 relative performance
The Technology Sector ETF has been very consistantly outperforming the S&P-500. The trend seems well established, with no evidence of any signs of exhaustion or reversal. Similarly, Consumer Discretionary Sector ETF's relative strength is evedent from the recent sustained break above the 2019 peak. However, the Communication Sector ETF's relative strength against the S&P-500 has met resistance from the 2018 peak. Also, the overall relative performance line seems a bit volatile and erratic. Therefore, we drop the Communication sector.
Outperforming Stocks within the Technology Sector
Outperforming Stocks within the Technology Sector
1-Year Top Outperformers
1-Year Top Outperformers
NVDIA Corp
AMD Inc
Apple Inc
Lam Research Corp
Skyworks Solutions Inc
PayPal Holdings Inc
QUALCOMM Inc
Microsoft Corp
ANSYS Inc
Autodesk Inc
3-Month Top Outperformers
3-Month Top Outperformers
PayPal Holdings Inc
Lam Research Corp
NVDIA Corp
AMD Inc
Apple Inc
Coming Inc
Skyworks Solutions Inc
CDS Inc
QUALCOMM Inc
Applied Materials Inc
It turns out more stocks within the Technology Sector have been underperforming, compared to those which outperformed. But the stocks which have outperformed were the heavy weights and were able to drive the whole sector.
To keep things simple, we further examine only those stocks which have outperformed the sector in the last one year AND three month periods. These stocks are PayPal, Lam Research, NVDIA, AMD, Apple, Skyworks and QUALCOMM
Relative Rotation Graph (RRG ®) Outlook
Looking at the 5-week RRG ® picture, there are three stocks with increasing momentum and increasing relative performance. These are Lam Research (LRCX), QUALCOMM (QCOM) and Apple (AAPL). We can posibly add Skyworks (SWKS) and AMD to this list, but these stocks are either losing or lacking momentum for now.
Let's examine the relative performance of each of these stocks with the Technology Sector
Let's examine the relative performance of each of these stocks with the Technology Sector
Lam Research / Technology Sector Ratio
The relative performance (ratio) line has recently broken above the 2018, 2019 and early 2020 peaks. This may be a precursor to a period of significant out performance in the coming weeks/months.
QUALCOMM / Technology Sector Ratio
While we see some near term outperformance, the overall relative trend has been hap-hazardous. There is no clear signs of any longer term market beating trend. So, we drop QUALCOMM.
Apple / Technology Sector Ratio
Here we see a clear market beating, multi year and a very sustained outperformance. While it may exhaust at some point, the trend currently is clear and strong.
Skyworks / Technology Sector Ratio
While there is no well established mega trend in force here, but there might be one developing. The relative performance (ratio) line seems to be poised to break above the recent peaks and it is above its yearly and quarterly rolling averages.
AMD / Technology Sector Ratio
A clear long term outperformer, AMD has been beating the broader Technology sector for a number of years. It seems the trend is here to stay for now.
Outperforming Stocks within the Consumer Discretionary Sector
Outperforming Stocks within the Consumer Discretionary Sector
1-Year Top Outperformers
1-Year Top Outperformers
Amazon
Target Corp
Lowes Companies Inc
Lennar Corp
Best Buy Inc
Dollar General Corp
DR Horton Inc
Chipotle Mexican Grill
Tiffany & Co
Pulte Group Inc
Ebay Inc
Tractor Supply Co
3-Month Top Outperformers
3-Month Top Outperformers
Pulte Group Inc
Lennar Corp
Whilpool Corp
DR Horton Inc
Tractor Supply Co
eBay Inc
Lowes Companies Inc
Best Buy Inc
Carmax Inc
BorgWarner Inc
Amazon
Ford Motor Co
The picture here is pretty similar to what we saw in the Technology sector. There are more sector constituents underperforming the sector, compared to those outperforming. In other words the sector is being driven higher mainly by the heavy weights. The companies that have outperformed the Consumer Discritionary sector over the past one year AND three month period are, Amazon, eBay, Lowes Companies, Lennar Corp, Best Buy and Pulte Group Inc.
Let's see where these companies are on Relative Rotation Graph (RRG)
Relative Rotation Graph (RRG ®) Outlook
Best Buy (BBY) seems like the best buy here, with increasing momentum and out performance relative to the Consumer Disc Sector. The rest of the stocks in our narrowed down list are also looking strong on RRG ®.
Let's examine these stocks individually against benchmark - the Consumer Disc Sector.
Let's examine these stocks individually against benchmark - the Consumer Disc Sector.
Best Buy (BBY) / Consumer Disc ratio
It is worth noting that the relative performance ratio has recently broken above the 2018 & early 2020 peaks. This suggests a breakout on the relative performance charts.
Amazon (AMZN) / Consumer Disc Ratio
Amazon's relative performance line has been in a secular uptrend, further helped by Corona Virus crises. There is no sign of stopping.
eBay (EBAY / Consumer Disc Ratio
While in the recent months eBay has benefitted from the lock-down, will thei trend continue? On the relative performance line is being challenged by the 2017/18 peaks and there are some signs of potential exhaustion.
Lowes Cos (LOW) / Consumer Disc Ratio
Lowes Companies relative performance ratio line has recently broken above the 2015-19 series of peaks. This may be a precursor to a further out-performance ahead.
Lennar Corp (LEN) / Consumer Disc Ratio
Despite the recent rise in the relative performance line, Lennar Corp has been in a long term down trend relative to the Consumer Disc sector. I'd stay away.
Pulte Group (PHM) / Consumer Disc Ratio
Despite the recent strength in the relative performance, Pulte Group has been broadly in a sucular flat trend. At this stage there is no clear sign of any extended out performance.
Conclusion: Regardsless of the broader stock market trend, we looked at each of the eleven marke sectors. The Technology and Consumer Discretionary sectors showed the most notable out performance. Upon further examination, we noted that there are a few selected heavy weight companies that are driving these sectors high. We tried to identify some of them by examining their relative performance with their respective sectors. Here is the top finds - Lam Research, Apple Inc, Skyworks, AMD, Best Buy, Amazon and Lowes Companies.
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