SECTOR RANKINGS REMAIN DEFENSIVE...HEALTHCARE HITS NEW RECORD WHILE TECHNOLOGY WEAKENS....DOW AVERAGES SIGNAL MORE CAUTION
WEEKLY SECTOR RANKING... A rebound on Friday leaves the major stock indexes either flat or with minor losses for the week. The weekly sector rankings in Chart 1, however, show a lot of movement beneath the surface. One factor that stands out is that defensive stock groups continue to show leadership. That includes healthcare, consumer staples, utilities, and real estate all of which gained ground on the week. So did energy. Some of the more economically-sensitive sectors lagged behind. They include consumer discretionary stocks and industrials. Industrials were weighed down by weak transportation stocks (more on that shortly). A three-year high in Treasury bond yields weighed on technology stocks and the Nasdaq market. Technology ended in last place for the week with most of the selling in semiconductors.
SEMICONDUCTORS FALL... Chart 2 shows the VanEck Vectors Semiconductor ETF falling sharply during the week and ending well below its moving average lines. The price drop also saw rising volume which is a negative combination. The SMH also ended the week closer to its March low than its March high. As is normally the case, technology stocks were negatively effected by another sharp rise in bond yields. While technology stocks and some economically-sensitive sectors were being sold, a couple of defensive sectors hit new records. They include healthcare and utilities.
HEALTHCARE SPDR HITS NEW RECORD... Healthcare stocks were the week's top sector and scored a bullish breakout. Chart 3 shows the Health Care Sector SPDR rising above its December high and moving into record territory. Its two leading groups were pharmaceuticals and health care providers. Utility stocks also saw another record high. By contrast, transportation stocks fell sharply. That's not a good combination.
BAD DOW SIGNALS...While the Dow Industrials saw little change during the week, the two other Dow averages saw relatively big changes. And the message they're sending isn't very encouraging. Chart 4 shows the Dow Utilities having a strong week and achieving another new record in the process. Utilities are considered to be defensive in nature. By contrast, more economically-sensitive transportation stocks fell sharply. Chart 5 shows the Dow Transports falling sharply and ending the week near their February low. The $TRAN was led lower rails, truckers, and delivery services. Rising energy prices may be contributing. Rising interest rates may also be playing a role. Recent yield curve inversions have added to concerns about a slowing economy. Which may explain recent rotations into defensive stock groups like utilities (and healthcare) and out of transportation stocks which are more closely tied to the direction of the economy.
