Late-2024 Exhibits Significant Vulnerability in Four Sector-Specific ETFs
Late-2024 Exhibits Significant Vulnerability in Four Sector-Specific ETFs
The most popular exchange-traded funds representing the health care, energy, materials, and real estate sectors are exhibiting the most significant late-year declines, based on their price chart performance. Various elements could be contributing. The prevalent theory is the perception that the Fed's interest rate reductions have ended.
Examining sectoral ETF performance may sometimes be misleading. In specific instances, it might just be a few poorly performing stocks within the ETF that are causing the entire group to underperform more than expected. Regardless, these price charts should be scrutinized by any investor allocating funds by sector.
4 Sector ETFs Showing Signs of Weakness.
Health Care Select Sector SPDR Fund (NYSE: XLV).
The ETF slumped to a new low of $136 on Thursday, marking a significant drop below the previous support set in mid-April. Despite the subsequent rebound on Friday, a potential concern arises from the 50-day moving average crossing below the 200-day moving average for the first time on this chart.
This ETF comprises 61 healthcare industry stocks, with notable holdings including Eli Lilly, UnitedHealth Group, and Johnson & Johnson. The recent tragic shooting of UnitedHealth's CEO, Brian Thompson, has unnSettled the entire group, leading to a reassessment of the health insurance industry's practices.
Energy Select Sector SPDR Fund (NYSE: XLE).
The ETF's Friday low dipped into the region of the early September low for the year, resulting in a substantial 14.28% loss from its peak in November, down to last week's close at $84. If the stock closes below the $82 level, this would further worry those holding positions in the stock.
The ETF has 22 holdings, with major contributors being Exxon Mobil (21%), Chevron (15%), and ConocoPhillips (7.99%). The absence of oil price rally and subdued profit expectations may be contributing to the ETF's weakness.
Materials Select Sector SPDR Fund (NYSE: XLB).
A two-month decline, from the near $98 peak in October to last week's closing price of $85, translates to a 13.26% loss. The stock has plummeted below the earlier July support. The 50-day moving average is now turning downward and seems poised to meet the 200-day moving average.
The Materials Select Sector SPDR Fund holds 28 stocks, including Linde with a 17% weighting, Sherwin Williams with a 6.95% weighting, and Air Products and Chemicals with a 5.70% weighting. The chemical sector represents a significant portion of the fund, with a total weighting of over 63%.
Real Estate Select Sector SPDR Fund (NYSE: XLRE).
Unlike the other ETFs, this fund's chart does not indicate a new low or an impending one. Instead, the stock is trading below the November low and exhibiting bearsish price action. The 50-day moving average is trending downward, while Thursday's dip below the 200-day moving average is a potential cause for concern.
The fund contains 31 real estate investment trusts, with major investments in Prologis (9.21%), Equinix (8.59%), and American Tower (8.22%). This ETF is more susceptible to market shifts, potentially impacted by the lack of future interest rate cuts and the possibility of impending higher rates.
More in-depth analysis and commentary can be found at johnnavin.substack.com.
- The UnitedHealth Group, a significant holding in the Health Care Select Sector SPDR Fund, has been impacted by the tragic shooting of its CEO, causing uncertainty within the health insurance industry.
- In the Energy Select Sector SPDR Fund, the absence of an oil price rally and subdued profit expectations might be contributing to the ETF's weakness, with Exxon Mobil being one of its major contributors.
- The Materials Select Sector SPDR Fund, which holds a significant portion of its weight in the chemical sector, has experienced a 13.26% loss over the past two months, with stocks like Linde, Sherwin Williams, and Air Products and Chemicals seeing a decline.
- The Real Estate Select Sector SPDR Fund, comprising 31 real estate investment trusts, is more susceptible to market shifts due to the lack of future interest rate cuts and the possibility of impending higher rates, with major investments in Prologis, Equinix, and American Tower.
- The materials sector ETFs, along with health care, energy, and real estate, have exhibited significant late-year declines, potentially influenced by the perception that the Fed's interest rate reductions have ended, impacting REITs like Equinix.