Financials And REITs Take The Lead For US Equity Sectors In 2021

Financials and real estate investment trusts (REITs) have displaced energy stocks as the performance leaders for US equity sectors this year, through yesterday’s close (Aug. 18), based on a set of exchange traded funds.

Financial Select Sector SPDR (XLF) is currently the top-performer, posting a 29.1% total return year to date. After treading water for much of June and July, XLF popped earlier this month, reaching a record high before pulling back in recent days.

Real Estate Select Sector SPDR (XLRE) is the second-strongest sector performer this year, just behind XLF via a 29.0% gain. In contrast with XLF’s choppy performance of late, XLRE’s rise has been a relatively smooth affair.

Meanwhile, the formerly high-flying energy sector has hit turbulence this summer. Although Energy Select Sector SPDR (XLE) is the third-best 2021 performer, the ETF’s technical profile looks increasingly bearish after dispensing sector-topping performances for much of the year — as recently as late-June.

All the main US equity sectors continue to post gains so far this year, but a wide divergence in results persists. The weakest performer: Consumer Staples Select Sector SPDR (XLP), which is up a relatively modest 8.1% in 2021.

The US stock market overall is ahead 18.2% via SPDR S&P 500 (SPY), which is roughly a middling performance relative to the gains for 11 sector funds.

Sector performances remain wide ranging year to date, but upside momentum continues to dominate, based on a set of moving averages (see chart below). Contrarians will counter that with much of the market seemingly priced for perfection via trending behavior, the risk of a correction appears elevated. Perhaps, but momentum persists… until it doesn’t. The recent market wobbles may be a sign that this year’s rally is fading. If that’s a prelude to something darker beyond another round of short-term noise, we’ll see increasing support for a bearish view by way of ongoing deterioration in the technical profiles in the days and weeks ahead.

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By James Picerno