Respite Is Brewing for Battered Real Estate, Utilities Sectors

  • Stock Market Analysis

The strong year-to-date gain in the US stock market is broad-based, led by shares in communications services and health care, based on a set of sector ETFs through Monday’s close (Feb. 26).

But the party has yet to spill over into utilities and real estate, which remain downside outliers this year.

The Communication Services Select Sector Fund (NYSE: XLC ) is currently the strongest sector performer in 2024, topping an 8% rise so far this year.

That’s a sizable premium over the broad market’s 6.5% increase via SPDR S&P 500 (NYSE: SPY ).

A close second-place performer: Health Care SPDR ETF (NYSE: XLV ) with a 7.9% year-to-date advance.

US Equity Sectors ETF Performance

Despite widespread gains, the celebrating isn’t comprehensive. Two sectors are currently in the red so far this year: utilities ( XLU ) and real estate ( XLRE ). On both counts, year-to-date losses exceed -4%.

In the winner’s circle, communications (XLC) and health care (XLV) are neck and next in this year’s rally, but there’s no competition when it comes to relative momentum vs. the broad market ( SPY ).

XLC is far and away the stronger performer by this metric, which implies that it has a stronger edge in terms of near-term performance expectations.

XLC:SPY Ratio-Daily Chart

By comparison, health care (XLV) remains relatively weak vs. the broad market (SPY), which suggests that XLV’s rally this year is softer and therefore more vulnerable than it appears.XLV:SPY Ratio-Daily Chart

But in the relative rankings the negative momentum in utilities and real estate is something else entirely as trend behavior remains deeply bearish.XLRE:SPY Ratio-Daily Chart

A respite is coming for these battered sectors – momentum biases reverse eventually. But at the moment, the trend signals continue to recommend caution for real estate and utilities for the near term.

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