| Sector | Jan | Feb | Mar | Apr | May | YTD |
| Communication Services Select Sector SPDR Fund (XLC) | -0.90% | 7.00% | 2.40% | -0.40% | 0.90% | 9.00% |
| Consumer Discretionary Select Sector SPDR ETF (XLY) | 0.80% | -0.50% | 4.30% | 3.50% | -3.40% | 4.70% |
| Real Estate Select Sector SPDR ETF (XLRE) | 0.50% | 1.60% | 5.80% | 6.20% | 1.10% | 15.20% |
| Industrial Select Sector SPDR ETF (XLI) | -4.30% | 6.90% | 8.70% | 1.80% | 3.10% | 16.20% |
| Technology Select Sector SPDR ETF (XLK) | -0.80% | 1.40% | 1.60% | 3.50% | -0.90% | 4.80% |
| Financial Select Sector SPDR ETF (XLF) | -1.80% | 11.61% | 5.40% | 4.40% | 4.80% | 24.41% |
| Materials Select Sector SPDR ETF (XLB) | -0.50% | 5.46% | 7.70% | 3.10% | 5.10% | 20.86% |
| Energy Select Sector SPDR ETF (XLE) | 7.30% | 25.43% | 2.60% | 1.60% | 5.70% | 42.63% |
| Consumer Staples Select Sector SPDR ETF (XLP) | -5.00% | -1.20% | 7.90% | 0.70% | 1.80% | 4.20% |
| Health Care Select Sector SPDR ETF (XLV) | 1.80% | -0.80% | 3.40% | 3.60% | 1.50% | 9.50% |
| Utilities Select Sector SPDR ETF (XLU) | -0.40% | -5.00% | 9.60% | 2.30% | -2.90% | 3.60% |
Where are we?
Year-to-date, we have seen an outperformance in the energy sector with a gain of 42.63%. However, we need to understand that this sector begin with a low base when oil price crashed heavily (going into negative territory on the futures market) in April 2020. There is still possible tailwinds driving the sector forward for the rest of 2021. One tailwind is the opening of the global economy. As restrictions start to lift in different countries, the usage of automobiles will increase. The global automobile industry constitutes more than 50% of the global oil demand. The opening up of borders will also add to the above point.
Technology has taken a back seat in 2021 as market participants start rotating out of growth into value stocks. YTD, the tech sector has only seen an appreciation of 4.8% which is a stark contrast to its performance in 2020. That proof the point that the top performing sector will seldom be the same for two consecutive years. I would start to rotate into the tech sector maybe towards the last 3 months of the year. As this is the first sector to recover after the covid, i believe this year it will play the lead again, only when the rest of the market has catch up.
The consumer staples and utilities sectors are expected to show benign growth going forward. This is due to the nature of the sectors. Positioning into these two sectors usually happens when the market is thought to be at the peak. With global economy recovering from the pandemic, the market still has a long runway. Tailwind for the global recovery include government stimulus, accommodative fiscal and monetary policies and high global savings rate. All these has continued to flood the market with ample liquidity.
The consumer discretionary sector should see growth in-line with the pace of the global economic recovery. The sector has the same tailwind as the global economic recovery theme. I will continue to position into the sector and buy on any pullbacks. Big names in this sector include Amazon, Tesla, Home Depot, Mcdonald’s, Nike, Lowe’s, Starbucks, Target, Booking and TJX. These 10 companies constitutes nearly 70% of the total holdings for XLY.
The financial sector continues to show strength and i am expecting this sector to continue its performance. With the expectation of an earlier-than-expected interest rate hike, NIM for banks will improve and increase Net margin for the banks. With the ultra low interest environment, M&A activities are expected to increase as well benefiting the investment bank like GS and MS.
As for the material sector, they have shown great performance in 2021 as well, growing 20.86% for XLB. However, this has been partly caused by the global supply chain disruption during the covid lockdowns. As the countries start to slowly open up, i see prices easing. Therefore, i am neutral on this sector for now.
I see both the industrial and real estates sectors to continue its growth for the rest of the year, though at a slower pace. The global pandemic is an unprecedented event and the modern world has not seen something this scale before. The recovery is definitely going to be bumpy. However, with the amount of investment injected into the study of this pandemic and the various medical breakthroughs, the ride will get easier and easier moving forward.
Again, the above point are strictly my views and does not constitute an offer or solicitation for any product sales. The above writings are strictly for informational and educational purposes.
Thank you and wishing all readers a great week ahead!