Leonardo DiCaprio’s role as Hugh Glass in “The Revenant” led him to the best-actor Oscar for the first time in his career. In the film, Leo is the legendary frontiersman Hugh Glass who not only survived a life-threatening bear attack but also braved hostile conditions to avenge betrayer John Fitzgerald.
The story is quite similar to the recent bounce in some sectors that escaped a bear market following massive sell-offs at the start of the year. In fact, like the determined Hugh Glass, these sectors stood up to register solid gains over the past one-month period.
The strong rebound in these sectors also helped the major benchmarks to make up for a significant portion of the losses that they incurred since the start of 2016. While the perpetrators of the losses – the oil price slump, rate hike uncertainty, and weak domestic and international growth – are yet to be fully addressed, the five S&P 500 broader sectors under our purview outstripped them with a revenant act.
5 Revenant Sectors
A strong recovery in crude emerged as one of the main drivers over the past one month. Encouraging comments on production cut or freeze by the key oil producing nations pushed oil prices northward in the latter half of February. Meanwhile, the Energy Information Agency (EIA) reported a 33,000-barrel-per-day cut in U.S. oil production to 9.1 million barrels in the week ended Feb 19 – the lowest level since Oct 2015.
Also, the Organization of Petroleum Exporting Countries (OPEC) reportedly reduced output by 79,000 barrels to 33.06 million per day in February. Plus, oil prices got a solid boost from a significant decrease in the total number of U.S. oil rigs.
After touching a 13-year low in Feb 11, WTI crude rebounded to gain over 30% and had a positive impact on energy stocks. The Energy Select Sector SPDR ETF (XLE), down 3.5% in January and gained only 0.1% year to date, jumped 5.4% in the trailing one-month period. In the same timeframe, Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) – the two Dow components from the sector– rose 5% and 3.4%, respectively.
Another sector that fell through most of 2015 and started off badly this year, the materials sector has staged a comeback. The strong rally in oil prices and relatively encouraging U.S. economic data played major roles in the sector’s huge bounce, which makes it one of the most remarkable revenants on the markets in recent times. (Read: 5 Materials Stocks to Buy on February Rebound)
Recently released data indicated that the U.S. economy is gradually recovering. In January, Personal consumption was the fastest that was experienced over the last eight months. Income moved up for the tenth consecutive time and was the highest since Jun 2015. Additionally, durable orders registered the biggest gain in the past 10 months.
Construction spending increased 1.5% to its highest level in nine years, indicating a rise in demand for construction materials. Moreover, better-than-expected industrial production and an improvement in the ISM manufacturing index must have had a positive influence on materials demand.
The Materials Select Sector SPDR ETF (XLB), down 10.7% and 1.1% in January and year to date, respectively, surged 7.5% in past one month. While the blue-chip company E. I. du Pont de Nemours and Company (DD - Free Report) gained 5.4% over the past one month, another behemoth from the sector, The Dow Chemical Co. (DOW - Free Report) , jumped 6.1%.
This sector was suffering since the start of 2016 amid a massive global sell-off in financial stocks, receding rate hike possibilities, a slowdown in China, weak domestic data and rising concerns over defaulting oil loans. As a result, the Financial Services Select Sector SPDR ETF XLFS lost 10.8% and 8.4% in the first month of 2016 and year to date, respectively.
However, the trend reversed over the past one month when concerns regarding oil loan defaults eased following a rally in the commodity’s prices. Also, positive economic data including a rise in inflation and an upward revision in the fourth-quarter GDP report led to speculation that the Fed may opt for a lift-off sooner than expected. As such, the sector gained 5.7% over the past one month. In the trailing one-month period, key companies from the sector like Berkshire Hathaway Inc. (BRK.B - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) added 8.4% and 4.4%, respectively.
Encouraging economic data for January also left a positive impact on this sector. Personal spending increased 0.5% – the maximum increase since June. Income moved up for the tenth consecutive time and was the highest since Jun 2015. Core personal consumption expenditure (PCE) – an important indicator of inflation – rose 1.3% in January. Retail sales also increased for the fourth straight month.
Moreover, despite a strong rebound in oil prices, still-low crude prices and favorable labor market conditions gave a major boost to consumers’ purchasing power. The ETF Consumer Discretionary Select Sector SPDR XLY gained 5.3% over the past one-month period after declining 5.2% and 1.8% in January and year to date, respectively. Two giants from this sector – The Walt Disney Co. (DIS - Free Report) and Amazon.com, Inc. (AMZN - Free Report) – gained 3.9% and 8.7%, respectively, over the past month.
The rebound in biotech stocks and encouraging fourth-quarter earnings performances prompted the recovery in the health care sector. Given the recent rise in overall investor sentiment, the iShares Nasdaq Biotechnology ETF (IBB - Free Report) gained 0.1% in the last one-month period after being down over 20% in both January and year to date.
The fourth-quarter earnings performances not only outperformed the total earnings performance of the S&P 500 components, but also excelled the performance of other sectors. While companies within the sector registered total earnings growth of 9.7% on 9.4% higher revenues, total earnings of the 490 S&P 500 members that reported Q4 results as of Mar 1 declined 6.4% year over year on 4.6% lower revenues.
The Health Care Select Sector SPDR ETF (XLV - Free Report) , which lost 7.7% and 6.2% in January and year to date, respectively, rose 2.3% in the past one month. In the trailing one-month period, key companies from the sector like UnitedHealth Group Incorporated (UNH - Free Report) and Merck & Co. Inc. (MRK - Free Report) gained 8% and 4.1%, respectively.
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