foxex: Sectors Poised

Chart Advisor | Focus on the Price

Wednesday, October 16, 2019

1. Sector Performance Shows Which Stocks are Poised to Continue Higher

2. Growth Stocks Rebounding as Market Calms

3. Can IBM Outperform the Industrial Sector?

Market Moves

Despite the upbeat news coming from Bank of America (BAC), which held its earnings call before the market open, the market remained in a tight range and closed mildly lower by the end of the day. The good news is that this tepid response in the opening week of earnings shows that investors may be calming down from September's roller coaster ride. That's a good sign for those looking for indications stocks will rise. It means investors aren't looking for excuses to sell out of their positions.

If stocks are set to rise, then the sectors which have been leading the year so far are likely a good bet to be those that lead the way higher in the final months. The chart below compares the sector performance using the price activity of State Street's Select Sector SPDR Funds. These ETFs each track a sector, namely, Basic Materials (XLB), Energy (XLE), Financials (XLF), Industrials (XLI), Technology (XLK), Staples (XLP), Utilities (XLU), Healthcare (XLV), and Discretionary (XLY). It may not be surprising to see that Technology and Discretionary stocks are leading the way, but what is more surprising is that they are doing so now. Late in a bull market cycle (after 3-to-5 years from the start) sectors like energy and basic materials tend to take the lead, but this isn't happening right now. This suggests that this bullish market may still have several months, or even a year more, left in it.

Growth Stocks Rebounding as Market Calms

Shares of Roku (ROKU) had an amazing rise and roller-coaster fall over the summer. Now it appears the shares may be rebounding in time for an upcoming earnings report. But that company isn't the only growth story investors are watching right now. Several other stocks such as Novocure (NVCR), Generac Holdings (GNRC), Trex Company (TREX), Nvidia (NVDA), and Haemonetics (HAE), have shown a recent move higher in anticipation of the market's potential rise through the end of the year.

Bank of America at Resistance After Upbeat Quarter

Low Expectations Could Fuel IBM Upside

Can IBM Outperform the Industrial Sector?

IBM (IBM) has surprised investors twice by beating expectations in the past two quarters, but that seems to have made very little difference to investors over that time. The stock has shown price action so far this year that is quite similar to State Street's Industrial Select Sector SPDR Fund (XLI). If the upcoming earnings report beats expectations, this performance pattern may break and lead the industrial sector higher. Some analysts believe that's a pretty wild assumption, however, and have set expectations lower. And yet, that may be the very reason it could happen.

The Bottom Line

Stocks held in a tight range closing slightly lower, setting the stage for the indexes to resume their upward climb. If earnings don't disappoint, the stocks in the leading sectors will likely continue to lead the pack. That means stocks in the technology sector and a few other growth stocks. IBM, however, could be a surprise along the way.

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