Thu 14 Dec 2006
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With just a handful of trading days left in 2006, major stock indices remain near multi-year highs and near their highs for this year. Strong earnings reports and good retail sales numbers provided support in recent sessions and could still help stocks to advance through these last few days. As Christmas approaches, however, investors and traders tend to get distracted. Trading volume slips no one seems to want to make any major moves. So don’t be surprised to see stocks drift sideways or slightly upward into the early days of 2007.
As we near the end of the year, it is interesting to note which sectors have showed the most strength. As usual, I’m going to use exchange traded funds (ETFs) for this example. There are currently about 350 ETFs available, and they cover virtually every industry and market sector. So by looking at the performance of ETFs, we get a pretty good indication of market behavior as a whole.
Of those 350 ETFs, more than 100 have come into existence during this calendar year. Of the ETFs that have been available for all of 2006, only five have negative returns. They include a biotech fund, a semiconductor fund, and three internet funds.
So far there are 175 ETFs that have posted double-digit gains, The strongest sectors–those with gains of more than 25%– have been international funds and real estate. Next in line are energy funds, small cap funds and precious metals, with returns in the 18% to 25% range.
Most of the traditional, U.S. market sectors slip into the lower tier of funds. For example, QQQQ, a widely used ETF that tracks the Nasdaq 100, has gained less than 9% for the year. Sectors that have long been the mainstay of the U.S. market like retail, health care, large cap stocks, etc., generally have returns in the 5% to 12% range.
This year will go on record as being a decent year for the stock market, but certainly not an exceptional year. And in spite of the solid returns from select sectors, most investors are only going to see modest 5% to 10% gains in their 401ks, IRAs, annuities, etc. Most retirement plans are invested in the more traditional blue chip sectors of the market that have lagged this year’s leaders.
The chart below illustrates the current situation. The black line is the daily price activity of the Nasdaq. Notice that this index has mostly gone sideways since peaking about a month ago. The gold line is the S&P 500. By comparison, it has continued to advance and is making new highs. The blue line is a 50-day moving average of the Nasdaq and the bottom portion of the chart is a moving average convergence divergence (MACD). Both of these indicators show that while the Nasdaq’s advance has slowed, upward momentum remains strong.
While the Nasdaq has been moving sideways, there are plenty of sectors still advancing strongly. Surprisingly, over the past month the past month the strongest sector has been home construction. IShares DJ US Home Construction (ITB) is up 14% over that period and the Homebuilders SPDR (XHB) has gained 11.78%.
Below is a listing of the top 50 ETFs over the past 30 days.
| ITB | EXTRADED DJ US Home Construction(iS) | 14.00% |
| XHB | EXTRADED Homebuilders(SPDR) | 11.78% |
| EWM | EXTRADED MSCI Malaysia(iS) | 9.24% |
| PGJ | EXTRADED Golden Dragon USX(PowShr) | 8.61% |
| EWO | EXTRADED MSCI Austria(iS) | 8.49% |
| XME | EXTRADED Metals & Mining(SPDR) | 8.40% |
| OIH | EXTRADED Oil Service(HLDRS) | 8.08% |
| XES | EXTRADED OIL & Gas Equipmnt & Serv(SPDR) | 8.02% |
| IEZ | EXTRADED DJ US Oil Equip & Serv(iS) | 7.58% |
| ICF | EXTRADED Cohen & Steers Realty Major(iS) | 7.57% |
| DFE | EXTRADED Europe SmallCap Dividend(WTree) | 7.35% |
| FXI | EXTRADED FTSE/Xinhua China 25(iS) | 7.33% |
| EWZ | EXTRADED MSCI Brazil(iS) | 7.33% |
| DBU | EXTRADED Intern’l Utilities(WTree) | 7.05% |
| SLV | EXTRADED Silver Trust(iS) | 6.92% |
| EWD | EXTRADED MSCI Sweden(iS) | 6.89% |
| DLS | EXTRADED Intern’l Divdnd SmallCap(WTree) | 6.86% |
| ILF | EXTRADED S&P 40 Latin America(iS) | 6.77% |
| DFJ | EXTRADED Japan SmallCap Dividends(WTree) | 6.70% |
| SLX | EXTRADED Market Vectors Steel Index | 6.53% |
| XOP | EXTRADED Oil & Gas Explorat & Prod(SPDR) | 6.35% |
| VNQ | EXTRADED Vanguard REIT(VIPER) | 6.31% |
| RWR | EXTRADED DJ Wilshire REIT(stTr) | 6.23% |
| IYR | EXTRADED DJ US Real Estate(iS) | 6.20% |
| JXI | EXTRADED S&P Global Utilities(iS) | 6.18% |
| XLE | EXTRADED Energy(SPDR) | 6.14% |
| VDE | EXTRADED Vanguard Energy(VIPER) | 5.96% |
| EWS | EXTRADED MSCI Singapore(iS) | 5.94% |
| IGE | EXTRADED GS Natural Resoures(iS) | 5.93% |
| IHI | EXTRADED DJ US Medical Devices(iS) | 5.87% |
| DIM | EXTRADED Intern’l Divdnd MidCap(WTree) | 5.82% |
| DBN | EXTRADED Intern’l Basic Materials(WTree) | 5.81% |
| IYE | EXTRADED DJ US Energy(iS) | 5.80% |
| DBT | EXTRADED Intern’l Technology(WTree) | 5.63% |
| PXJ | EXTRADED Dyn Oil & Gas Services(PowShr) | 5.62% |
| PXE | EXTRADED Dyn Energy Explor&Prodn(PowShr) | 5.55% |
| PXI | EXTRADED PS Dynamic Energy Sector | 5.51% |
| PBS | EXTRADED Dyn Media(PowShr) | 5.50% |
| DNH | EXTRADED Pacific ex-Jap HiYld Eq(WTree) | 5.49% |
| EEB | EXTRADED Claymore/BNY BRIC | 5.49% |
| IXP | EXTRADED S&P Global Telecommunicatio(iS) | 5.36% |
| EWJ | EXTRADED MSCI Japan(iS) | 5.34% |
| PRFE | EXTRADED FTSE RAFI Energy(PowShr) | 5.24% |
| EWP | EXTRADED MSCI Spain(iS) | 5.17% |
| EWW | EXTRADED MSCI Mexico(iS) | 5.16% |
| EWG | EXTRADED MSCI Germany(iS) | 5.14% |
| PKB | EXTRADED Dyn Building & Construc(PowShr) | 5.02% |
| DGG | EXTRADED Intern’l Communications(WTree) | 4.96% |
| EZA | EXTRADED MSCI South Africa(iS) | 4.88% |
| ADRE | EXTRADED Emerging Mrkts 50 ADR(BLDRS) | 4.80% |
So far December has also been a good month for the energy sector. Those gains should continue with an announcement today that OPEC plans to seek another reduction in output at its next gathering in February.
It’s hard to believe that Christmas is just 10 day away. I still have lots of shopping and other preparations to finish. I hope you are enjoying this special season of the year.
F.S.