SECTOR RANKINGS SHOW ENERGY, FINANCIALS, AND INDUSTRIALS IN THE LEAD -- WHILE CONSUMER DISCRETIONARY AND TECHNOLOGY LAG BEHIND -- A CHART LOOK AT ENERGY
ENERGY STILL IN THE LEAD... After a hectic week when a rise in bond yields caused some profit-taking in technology stocks and the Nasdaq market, a strong jobs report on Friday helped stocks end the week on a strong note. One of the factors driving bond yields higher is expectations for higher inflation. So it's only appropriate to see the week's two strongest sectors being energy and financials. A sharp jump in the price of crude oil is one of the factors contributing to higher inflation expectations; while higher interest rates are boosting financial shares. Industrial stocks, which were the week's third strongest sector, are continuing to benefit from the recent rotation into more cyclical parts of the market. The table in Chart 1 shows the week's sector leaders and laggards. It shows energy, financials, and industrials in the lead; with consumer discretionary and technology being two of the week's laggards. Eight of the eleven sectors ended in the green with only three losers. Investors continued to show a preference for value stocks over growth. The S&P 500 Value ETF gained 2% on the week while its Growth counterpart lost -1%. That was mainly due to weaker technology stocks.
A stronger than expected jobs report on Friday helped push stock indexes sharply higher. The Dow and S&P 500 ended the week with small gains. While the tech-d0minated Nasdaq ended the week -2% lower. The 10-Year Treasury yield climbed 9 basis points to 1.55% and reached the highest level in more than a year. The Nasdaq 100 bounced off potential chart support along its September peak. The strong rally in the energy sector showed no sign of slowing.
ENERGY STILL HAS MORE ROOM TO RUN...The weekly bars in Chart 2 show the WTIC Light Crude Oil continuing to rally after recently breaking through a major down trendline extending back to 2018. Friday's WTIC close of $66 also puts the commodity above its early 2020 peak at $65. That raises the possibility for an eventual rise toward its 2018 peak near $76. The only potential caveat is its 14-week RSI moving into overbought territory over 70.
The weekly bars in Chart 3 show the Energy SPDR (XLE) also breaking through a falling trendline extending back to 2018 and ending the week at the highest level in a year. That also shows a market with more room to run on the upside. Rising energy prices along with other commodities are raising inflation expectations which is contributing to the recent rise in Treasury yields. And contrary to the Fed's view on inflation, those commodity gains don't look transitory.
