3 sectors that are outpacing the S&P 500

Momentum could be pointing to big gains going forward for these parts of the stock market.

  • By Jeff Reeves,
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Investors remain ever-so-close to popping the Champagne corks yet again, ready to cheer another new record for the stock market.

But lately, it has been hard for the benchmark S&P 500 SPX (.SPX) to break through that all-important 2,900 mark. Heck, after setting highs just shy of that measure in January, the S&P has had trouble even staying in the 2,800 range.

Approaching new highs but running into resistance isn’t an uncommon occurrence, and technical traders will note that consistently higher lows across the last few months are a bullish sign even if we haven’t been able to breach 2,900 just yet.

But it’s important to remember that this is indeed a market of stocks, and that there is a lot of variety among sectors and individual names. In fact, even as the S&P 500 has been struggling to set a new high for a while, there are a bunch of sectors that have been locked into clear uptrends.

Here are three sectors where stocks are setting new highs like clockwork, and momentum could be pointing to big gains going forward — regardless of how long the S&P takes to break out.

Consumer discretionary

There has been a lot of talk in the last year or so about the power of American consumers, with confidence metrics hitting 18-year highs and strong spending metrics helping the U.S. to post its fastest pace of GDP growth since 2014.

For investors, the consumer-discretionary slice of the S&P 500 reflects this strength in a big way, with this sector at a 52-week high. Furthermore, financial data firm Barchart shows that roughly 65% of its stocks are above their 100-day moving average. That indicates this is a broad-based rally and not just a few big names carrying the day.

That said, a few high fliers certainly stand out. Amazon.com (AMZN) is the easy one, with year-to-date gains of 60% and no sign of slowing down even as other FAANG stocks have hit a bit of volatility lately. However, other big winners include retailer Macy’s (M) and burrito purveyor Chipotle Mexican Grill (CMG); their shares have roared back with a vengeance that year and are up about 60% in 2018.

There are a host of smaller names worth checking out that aren’t part of the broader S&P 500 index. These include fast-growing weight-loss brand Medifast (MED) which has tripled in 2018 and continues to power higher after blowout earnings in early August that showed 55% sales growth an 84% profit growth.

With strong big-picture consumer metrics and with impressive gains for stocks in the sector lately, it’s hard to bet against discretionary stocks right now regardless of any broader volatility.

Utilities

It may sound crazy to consider the utilities sector as dynamic. But look at the numbers: As of Friday, 100% of the 29 utility stocks in the S&P 500 were above their 100-day moving average. That’s right — every single one!

Furthermore, 12 out of 29 are just a 5% move or less from a new 52-week high. Among these names are Exelon Corp (EXC) and FirstEnergy (FE).

Of course, the bears may point out that’s strength in utility stocks may not exactly be a good thing for other “risk on” corners of the market. These picks are about as stable as you get, with legalized monopolies in their respective geographies and a very stable customer base that can either plug in or move to another part of the country.

But utility stocks do have some specific strengths worth highlighting. Unlike more modest dividend payers that are being overshadowed by 10-year Treasury yields, stocks like Exelon and FirstEnergy yield between 3% and 4% and so remain attractive among income investors. Furthermore, the focused and domestic nature of utilities keeps them insulated from any grumblings about a trade war or lost overseas revenue.

There are certainly reasons to doubt that utilities will post some of the growth metrics in other sectors. But the charts don’t lie: When it comes to momentum, utilities have it in spades right now.

Information technology

Tech stocks are certainly witnessing their share of volatility. But once again, the numbers seem to indicate a general strength in this sector that is simply unmatched by the alternatives. As a group, S&P Information technology stocks are up against a new 52-week high, with almost 70% of stocks above their 100-day average according to Barchart. When you extend that window to 200 days, 79% of tech stocks are above their moving average.

This speaks to amazing momentum in this sector, even if some worry that recent fireworks are hinting at a top for tech. Sure, big name stocks like Apple Inc. (AAPL) and Google parent Alphabet (GOOG) (GOOGL) are indeed up against new 52-week highs. But don’t forget all the other names in the sector that don’t get as much attention.

Cloud computing companies are one big bright spot. NetApp Inc. (NTAP) is up 50% year-to-date and currently sits at a new 52-week high in anticipation of its earnings report on Aug. 15 following strong results for its fiscal fourth quarter in May. There’s also Twilio Inc. (TWLO) which has surpassed its post-IPO peak in 2016 and is at a new all-time high thanks to a 16% jump in a single session after a big earnings beat.

Midsize software plays are also doing well. This includes analytics and performance software provider New Relic (NEWR) which just saw a big earnings beat on a 35% revenue surge, as well as cybersecurity play CyberArk Software (CYBR) that topped estimates thanks to a 71% surge in earnings.

None of these companies are small potatoes, but neither are they the megacaps you hear so much about. That shows a lot of breadth in the sector.

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