Investors received an early holiday gift from the Federal Reserve as Jerome Powell and the Fed members made a significant dovish shift during the latest FOMC meeting, sparking a rally in stocks and bonds. With inflation moving closer to its target, the cost of holiday gifts saw a slower increase this year, reflected in the PNC Christmas Price Index, which rose by 2.7%, a notable slowdown from the previous year's 10.5% gain. Service-related gifts were the main contributors to price hikes, while goods-related gifts saw a more moderate rise. Looking ahead to 2024, decreasing inflation is expected to persist, potentially allowing the Fed to ease policy and enhancing the chances of a softer economic landing.
In the last week of 2023, three defensive sectors, Consumer Staples-XLP, Utilities-XLU, and Health Care-XLV, had the top three returns, 1.14%, 1.13%, and 1.01%, respectively. Energy-XLE had the worst performance, with a 1.34% loss.
Year-to-Date Performances
Technology-XLC (55.66%), Communication-XLC (45.51%), and Consumer Discretionary (36.56%) have been the best performers in yearly returns. Those three sectors have beaten the S&P 500 ETF-SPY. Utilities-XLU (-7.83%), Consumer Staples-XLP (-2.43%), and Energy-XLE (-0.73%) have been the sectors that had negative returns.
Looking at Figure 3, the relative strength (to SPY) charts of all eleven sectors, we observe that the Communication-XLC has weakened. At the same time, Technology-XLK is gaining momentum, although it has declined since July 2023. Financials-XLF and Real Estate-XLRE have been the other two sectors gaining strength. Their relative strength value has been approaching the positive territory.
Comparing the Sectoral ETF Correlations at Table 1, we observe that the correlations of XLB-XLU, XLB-XLV and XLB-XLP have increased by 0.01 compared to the previous weeks’ correlation table.
Communication Services Sector ETF (XLC)
With a 2.97% weekly return, T-Mobile-TMUS finished (at 160.33) the week and the year close to its all-time high ($161.19). TMUS’s yearly return has been at 14.52%.
Technology Sector ETF (XLK)
Advanced Micro Devices-AMD has been the best performer, with a 5.59% return last week. AMD’s had a 127.59% return in 2023. However, according to SimplyWallStreet,AMD is overvalued by 12.2%.
Cisco Systems-CSCO had a 0.86% weekly return last week. The SimplyWallStreet forecastsCSCO’s fair value to be $73.61, 31.4% above its current price of $50.52.
Consumer Discretionary Sector ETF (XLY)
Last week, TJX (2.13%), McDonald's-MCD (1.65%), and Starbucks-SBUX (0.77%) were the top three performers for Consumer Discretionary-XLY.
Consumer Staples Sector ETF (XLP)
Mondelez International-MDLZ has been the best performer last week with a 2.32% return. Regarding fair value, MDLZ still has a 27.3% upside, as estimated by SimplyWallStreet.
Health Care Sector ETF (XLV)
Eli Lily and Company-LLY had a 2.20% return last week. Pfizer-PFE and Amgen-AMGN have followed LLY with 1.37% and 1.36% returns, respectively.
Johnson & Johnson-JNJ closed the year at $156.74, 35.9% below its fair value ($244.60).
Utilities Sector ETF (XLU)
It was a good week for Utilities-XLU (1.13%). Pacific Gas & Electric-PCG was the best performer, with a 2.38% weekly return.
Constellation Energy-CEG closed the year at $116.89, which is 50.1% of its fair value of $234.41.
Energy Sector ETF (XLE)
It was a lousy week for Energy-XLE (-1.34%). No stocks from its significant holdings had a positive return.
Pioneer Natural Resources-PXD lost 1.64 by closing at $224.88, below its forecasted fair value ($353.22) by $36.3.
Real Estate Sector ETF (XLRE)
Public Storage-PSA has been the best performer in Real Estate-XLRE’s major holdings with a 2.37% return.Realty Income-O has followed PSA with a 1.38% return and closed at $57.42, 46.0% below its forecasted fair value ($106.40).
Financials Sector ETF (XLF)
JP Morgan-JPM with a 1.61% return has been the best performer last week among Financials-XLF’s major holdings. Goldman Schas-GS has followed JPM with a 1.35% gain. JPM closed the year at $170.10 which is below the forecasted fair value ($265.59) by 36%.
Industrials Sector ETF (XLI)
Two stocks in Industrials-XLI’s major holdings have had a weekly return larger than 1.5%: Honeywell-HON (1.98%) and Caterpillar (1.83%).
Lockheed Martin-LMT has come fourth in terms of weekly returns with 1.12% and closed the year at $453.24, 27.5% below its fair value of $624.86.
Materials Sector ETF (XLB)
Although Materials-XLB closed the last week of 2023 in red (-0.07), six of its major holdings have been positive. DuPond-DD has been the best performer, with a 1.85% return last week.
Although Dow Inc.-DOW lost 0.51% last week by closing at $54.84, it has a 31.5% upside since its fair value is forecasted at $80.09.
Investing Ideas Using Fundamental Analysis
Lastly, Table 2 presents some investing ideas for you.
Thanks for reading!
Please remember to share your comments with me so that I can create a better version of this week's post in the next episode of the Sectoral ETFs Cycles News Letter.
Regards,
-Cenk
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