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3 Top Industry Group to Help Cut Through the Macro Noise

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Market Overview

Wednesday, U.S. equities swung wildly in both directions but ultimately finished lower after the Federal Reserve hiked interest rates by 25 basis points. The rate hike brings the expected Fed funds rate to between 4.75 to 5 – the loftiest levels since 2007, before the financial crisis. The nine straight hikes equate to the longest streak since the one that occurred in the three years preceding 2018.

Initially, the Nasdaq 100 ETF ((QQQ - Free Report) ) ripped higher by nearly 2% after Fed Chairman Jay Powell said that “we considered an interest rate pause” after the collapse of several regional banks. However, he later stated that the Fed decided to hike interest rates based on “consensus” opinions. As Powell wrapped up his comments, stocks looked poised to finish strongly.

Wednesday’s Nasty Close

Nevertheless, Secretary of the Treasury Janet Yellen put a later damper on equities. Yellen first warned that situations like the bank run on Silicon Valley Bank () might be more likely to happen in the future. Later, she spooked markets further by divulging that the treasury is not considering a broad increase in deposit insurance. In other words, depositors will not be covered above the $250,000 guaranteed by the FDIC should a bank fail.

The result is that the QQQ finished down nearly 1.5%. However, the biggest loser was the regional-bank heavy iShares Russell 2000 ETF ((IWM - Free Report) ). Small caps never rallied in sync with the other indices after Powell’s bullish comments – a clear sign of weakness.

Zacks Investment Research
Image Source: Zacks Investment Research

Presently, there is a significant dichotomy between the tech-heavy Nasdaq and the small-cap Russell. Small caps are testing December lows while tech stocks reversed near seven-month highs.

Industry Group Leaders

Indexes such as the Russell 2000 and Nasdaq Composite are comprised of stocks that make up industry groups. Currently there is a wide dichotomy between the “haves and have nots”. Today we will cover 3 top industry groups to watch:

1.   Internet – Delivery Service Industry:This small yet mighty industry group is ranked in the top 2% of all groups tracked by Zacks. One stock within the group setting up is Vipshops ((VIPS - Free Report) ). China had one of the most stringent COVID-19 lockdown policies in the entire world. In fact, at times, Chinese President Xi was willing to allow the Chinese economy to come to a screeching halt to tamp down coronavirus cases. Throughout this time, Vipshops and most other Chinese companies suffered. However, in the past three quarters, VIPS has turned around its EPS picture and has grown EPS by 12%, 55%, and 27%. Despite the widely publicized reopening of the Chinese economy, analysts seem slow to change course. VIPS has delivered positive surprises in four straight quarters, including big beats of 42.31% and 33.33%.

Zacks Investment Research
Image Source: Zacks Investment Research

2.   Internet Content Industry: Once again a top group, the Internet Content Industry has found itself at the top of the heap many times over the past few years, and for a good reason. The internet has given birth to some of the largest winners in recent years. Airbnb ((ABNB - Free Report) ) is one of those emerging leaders. Airbnb benefits from the new era of decentralized work locations and a yearning to travel post-pandemic. ABNB is consolidating gains and setting up technically after smashing earnings in the most recent quarter.

Zacks Investment Research
Image Source: Zacks Investment Research

3.   If you’re hunting for steadiness in an industry, it’s difficult to beat the Manufacturing – Farm Equipment group. Deere ((DE - Free Report) ) is the leader of the group. After a pullback in price, shares look attractive – especially if you want to stave off the macro-related volatility caused by the banking industry. Over the past four quarters DE has delivered double-digit top and bottom line growth.


The recent action in the market illustrates one of the most lopsided “stock pickers” markets in recent memory. One way to cut through the noise and find big winners is to focus on the top industry groups. Remember, the top 50% of Zacks Ranked groups tend to outperform the bottom half by a factor of two to one.


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