Sector Winners and Losers week ending 5/21

Original Chart

Sector performance provides some clues this week on how investors are thinking about inflation and the Fed. Just like the market character changed around the Wednesday release of the Fed meeting minutes, the sectors also saw a change in leadership. It still remains to be seen if that new character sticks for the coming weeks, or gets disrupted as the inflation story unfolds.

Real Estate ( XLRE ), Health Care ( XLV ), and Utilities ( XLU ) top the list for the full week, and that reflects well the overall mood of investors. These sectors are used as defensive sectors. Regardless of whether economic conditions serve better cyclical stocks or growth stocks, the services in these defensive sectors are always required. Consumer Staples ( XLP ) is also up in that list and outperformed the S&P 500 index .

For the remaining sectors, it’s worth looking at performance before and after the Wednesday Fed release. Coming into the week, there was a clear focus on cyclical sectors with Energy ( XLE ) and Materials ( XLB ) leading on Monday. Investors turned defensive on Tuesday, popping the defensive sectors to the top. And then the gap down at open came on Wednesday with shifting investments on lower volume leading into the meeting minutes release at 2p.

After Wednesday, it’s clear there was a change in sentiment. Technology ( XLK ) and Communications ( XLC ) came out of the gap-down and performed best through the end of the week, despite a small pullback for both on Friday. They performed well enough to end the week outperforming the S&P 500 index .

That leaves the cyclical sectors at the bottom of the list. Materials ( XLB ), Industrials XLI ), and Energy ( XLE ) were the bottom three sectors. For these sectors, much rests on Biden’s infrastructure plans passing through congress, but the proposals continue to be rejected by Republicans. It’s reasonable to expect that with continued headwinds for the infrastructure bill, we’ll see some downside for cyclical sectors, see inflation decelerate a bit, and give some life to growth stocks, even if for a short period.

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