SEAF’s 3 Top-Ranked Sectors Are All Defensive
Conclusion, Investment Implications, Strategy
This week, the SEAF Model retains its Sep 9th overweight bias in defensive Consumer Staples (XLP) and Utilities (XLU) and adds another defensive sector, Health Care (XLV), this week. Having the three best-ranked sectors of the S&P 500 according to the SEAF Model all being defensive in nature while the S&P 500 is simultaneously testing all-time highs is highly unusual.
At the other end of the spectrum, offensive, “risk on” sectors Technology (XLK) and Communication Services (XLC) remain among the worst-ranked sectors according to the SEAF Model. We can also see this defensive positioning in our CARP Model and US vs. The World Model. All of this suggests that investors are collectively positioning for an upcoming market peak and bearish reversal, perhaps due to a slowing US economy, rising unemployment, and expectations for Federal Reserve interest rate cuts as early as this week.
Separately, our ETF Trade Ideas, selected based on 1) positive price trends, 2) relative outperformance versus the benchmark S&P 500, 3) expanding investor assets, and 4) risk versus reward, currently favor the SPDR Gold Shares ETF (GLD), the SPDR S&P Telecom ETF (XTL), and the Invesco MSCI Global Timber ETF (CUT).
Beyond The SEAF Model Video: This Week’s Sector Themes
This weekly video by Jack Kosar, MSF, goes into more detail on the latest SEAF Model data via a heat map that shows where sector-related assets are going, and where they are leaving, in the 11 Sector SPDR ETFs, and also dissects our SEAF “Rainbow Charts” which display the past 12 months of Favored, Neutral, or Avoid rankings in several key market sectors.
From The Video: This Week’s Major Themes
- Money continues to aggressively move into Utilities and Consumer Staples in All time periods.
- Money is aggressively moving out of Financials in the Trading time period.
- Money continues to aggressively move out of Energy in All time periods.
The SEAF Model: Current Signals & Related Performance
Editor’s Note: These are the latest specific trading signals generated by our SEAF Model, which also includes a rules-based money management component. The backtested performance data below is based on trading a predetermined amount of assets with an equal allocation of those assets across the top three Rankings. The model is updated once per week, on the weekend, and any rebalancing takes place on the market opening the following Monday morning. This is the recommended way to invest via the SEAF Model. Contact us for any additional clarification.
- The SEAF Model exited it’s August 19th long/overweight signal in the Financial Select Sector SPDR Fund (XLF) on Sep 13th for a 1.2% outright gain while outperforming the S&P 500 (SPY) by 0.7%.
- Effective Monday 9/16, there is a new buy/overweight signal in the Health Care Select Sector SPDR Fund (XLV).
- Since 9/9, the Consumer Staples Select Sector SPDR Fund (XLP) has risen by 0.4% outright while underperforming the S&P 500 (SPY) by 2.4%.
- Since 9/9, the Utilities Select Sector SPDR Fund (XLU) has risen by 2.4% outright while underperforming the S&P 500 (SPY) by 0.4%.
In the SEAF Model Graphic below, the Ranking column sorts the entire table of 11 sector ETFs according to the sum of rankings in the Trading (weekly), Tactical (monthly), and Strategic (quarterly) categories, from largest inflows to largest outflows. The premise of the model is to invest in the sectors that the money is going into and to avoid the sectors the money is coming out of.
The lower the Ranking number, the stronger the trend of asset flows going into that sector. The top two sectors in each category, according to a positive change in inflows, are highlighted in green. The top two sectors in each category, according to a negative change in outflows, are highlighted in red.
Click the table to make it larger
Synopsis: The latest data indicate a multi-timeframe trend of asset inflows into Utilities. This is where the money is currently going in the sector space. The latest data also indicate a multi-timeframe trend of asset outflows from Energy. This is where the money is coming from.
SEAF Model Individual Sector Charts (“Rainbow Charts”)
The charts below display the weekly SEAF Model Ranking Scores over the previous 12 months for the strongest and weakest sectors through September 12th. The line in the upper panel displays these weekly scores within the context of being Favored (3-15, green), Neutral (16-24, yellow), or Avoid (25-33, red) and also displays the trend of asset flows as the money moves in and out of these sectors. The lower panel plots the corresponding weekly relative performance chart of that particular sector versus the S&P 500 (SPY).
Utilities: XLU
Defensive Utilities (XLU) is tied with Consumer Staples as the SEAF Model’s top-ranked sector this week with a Ranking score of 7. XLU has also been one of the three best-ranked sectors of the S&P 500 according to the SEAF Model for nine of the past 10 weeks beginning on Jly 15th. Chart 1 below shows that Utilities has been on a Favored status according to SEAF since Jly 18th (upper panel) while XLU has coincidentally outperformed the the benchmark S&P 500 (SPY) by 14%.
Consumer Staples: XLP
Defensive Consumer Staples (XLP) is also the SEAF Model’s top-ranked sector this week with a Ranking score of 7. The green highlights in the upper panel of Chart 2 below show that XLP most recently moved into Favored status on Aug 21st and, with the exception of a quick move into and out of a Neutral ranking on Aug 28th, has remained there since. The lower panel shows that Staples has coincidentally outperformed the S&P 500 (SPY, lower panel) by 4%. XLP has also been one of the three best-ranked sectors of the S&P 500 according to the SEAF Model for four of the past five weeks beginning on Aug 26th.
Health Care: XLV
Defensive Health Care (XLV) is currently the SEAF Model’s third-ranked sector with a Ranking score of 13. The upper panel of Chart 3 below shows that Health Care has been erratically jumping into and out of a Favored ranking since Jly 24th but has also been one of the four best-ranked sectors of the S&P 500 according to the SEAF Model for six of the past eight weeks beginning on Jly 29th. The lower panel shows that XLV has coincidentally outperformed the S&P 500 (SPY) by 8% during this period.
Energy: XLE
Economically sensitive Energy (XLE) is once again the SEAF Model’s worst-ranked sector this week with a Ranking score of 31. More importantly, Energy has also been one of the three worst-ranked sectors of the S&P 50 according to the SEAF Model for 13 of the past 15 weeks beginning on Jun 5th. Chart 4 below shows that Energy has, for the most part, been on an Avoid or Neutral status since Jun 5th (upper panel) while XLE has coincidentally underperformed the S&P 500 (SPY) by 13%.
Sector & Industry Group Trade Ideas: Trend, Relative Performance, Asset Flows, Risk/Reward
The ETF name and ticker, the date the idea was initiated, the price target, and the price that the idea remains valid above (or valid below if a short idea) are listed for each idea. The current performance of the idea, both outright and relative to the S&P 500, is also listed. The ideas are listed chronologically, with the newest ideas on top and new ideas or changes highlighted in yellow. These ideas are intended to identify short-term trading opportunities rather than longer-term investments.
More information about the trading ideas presented in this table, including the quantitative performance of these ideas over the past 16 months, is available by Clicking Here.