Basic Materials Rise

September 14, 2020  |  Michael Reilly

There’s been a lot of talk lately about Technology stocks breaking down and fears that it could drag the entire market down right along with it.

Mainstream media is feeding you with a fire-hose and an endless barrage of headlines about the NASDAQ and its tech constituents plummeting off recent highs..

Here’s the reality, consolidations after big run ups are normal – nothing moves up in a straight-line.  And in case you missed it, Tech is just one of 11 sectors that comprise the U.S. equity market.  So, if investment capital is moving out of one sector (technology), look for rotation into another.

Strong healthy markets are born of sector rotation. When we talk about “market breadth”, that’s what we’re talking about – broad based participation with more and more stocks (not just tech stocks) participating in a move.

When we take the time to dig into the sector breakdown for U.S. equities, we can see where the shifts in strength are occurring across the U.S. equity landscape.

That’s simply not something an investor can expect to see by focusing on the S&P 500 or NASDAQ.

So, where is the shift in strength occurring today? Look no further than Basic Materials.

Using the SPDR Basic Materials Sector ETF (XLB) as a sector proxy, we can see the Materials sector is breaking out to new highs!

Not only has the sector broken out to new highs on an absolute basis, but it is also moving up against the broader market on a relative basis.

The rising line indicates Basic Materials stronger than the broader market – S&P 500.

The above is a relative strength perspective – it’s a great way to visualize sector and market strength and helps us find stocks/ETFs we might want to own. We like stocks/ETFs showing relative strength against the broader market.

We also like to see outperformance on an absolute basis. So while the S&P has garnered a lot of attention the last few months (rising 11.86%), Basic Materials (XLB) has shot up over 20% (20.32%). What’s there not to like about that.

Over the last 30 and 90 day periods, Basic Materials is leading all other sectors in absolute performance – jumping 5.12% over the past month and 20.13% during the most recent 3 months.

One Month:

Three Months:

The Basic materials sector includes anything from industrial metals, to lumber and chemicals. So keep your eye on this sector for additional follow through and continued strength vs. the broader market and the 10 other sectors.

Until next week, invest wisely…


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