Folks, the signs are all around us…
The market is entering a new “bullish” phase.
Sure, an asteroid could hit Earth. Or some other calamity could derail this new uptrend.
But as I’ve said before, we’re quants…
We don’t have a crystal ball. We rely on the data in front of us – not wild speculation.
And today, the data is just about as clear as it gets…
One of the market’s most “defensive” sectors is struggling right now. It underperformed the S&P 500 Index by roughly 20 percentage points over the past six months.
That’s noteworthy because it’s the sector where investors flock when everything falls apart. But that isn’t happening today. And now, the Power Gauge sees it as “very bearish.”
Let’s take a closer look…
If you haven’t guessed yet, we’re talking about the utilities sector today.
It’s the prototypical “defensive” play. That’s because utilities tend to have stable earnings. And even when things get tough, investors can expect consistent returns from them.
In other words… you might not make it big with utilities, but your cash is often safe.
Well, that’s not always true.
When a newly formed bull market is happening, these types of companies tend to lag behind. Folks would rather invest in other potential high-flying sectors – like technology.
We’re seeing that play out today…
The Power Gauge measures the utilities sector with the Utilities Select Sector SPDR Fund (XLU). And the following chart shows the exchange-traded fund’s (“ETF”) performance over the past year. Take a look…
Now, look closer at the middle of the chart. Something dramatic happened at the start of this year…
The broad-market-tracking S&P 500 took off. But the utilities-tracking XLU stalled out.
XLU has underperformed the broad market by roughly 20 percentage points over the past six months. And when we look at the Power Gauge, the situation gets even worse…
In short, utilities is the second-worst-ranked sector today. It’s rated as “very bearish”…
The utilities sector earns that rating because of its terrible Power Bar ratio.
That’s the multicolored bar on the right side of the above screenshot from the Power Gauge. It shows the number of “bullish,” “neutral,” and “bearish” stocks within the ETF.
Today, XLU only has two “bullish” or better stocks. And it has 15 “bearish” or worse stocks.
That’s just about as bad as it gets. And it’s not just the smaller holdings in the ETF, either. Four of XLU’s top five holdings earn “bearish” or worse grades from the Power Gauge today.
Regular Chaikin PowerFeed readers should recognize this story…
For months, we’ve pointed out that the market was tilting away from traditionally defensive plays like utilities. And as a new bull market gets underway, this reality is unavoidable.
The data is clear…
The markets are running headlong into tech and growth-oriented stocks. And once-reasonable defensive plays are now a portfolio graveyard.
This warning is especially important for investors who take a “wait and see” approach…
Folks, the market is chewing you up if you’re clinging to old defensive strategies.
It’s time to take control of your own wealth. It’s time to get active again.
Good investing,
Marc Chaikin
P.S. Speaking of the Power Gauge, I hope you don’t miss my latest market briefing…
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