Consumer Discretionary (XLY) Retains Late October Top SEAF Ranking

Weekly-Updated PDF of all SEAF “Rainbow Charts:  Click the link below to download a PDF of this recent addition to our research services.

CLICK HERE for SEAF Rainbow Charts slide deck through 12-12-2024

Editor’s Note, 12-14-2024:  With just two weeks left in 2024, an extremely difficult year to outperform the market with the S&P 500 (SPX) rising by a spectacular 49% since late October 2023, the SEAF Model is up by 25.4%, trailing the S&P 500 (SPX) by just 1.5% year-to-date but with a 45% smaller maximum drawdown, a 35% lower beta, and a slightly lower standard deviation.  This means essentially identical performance to the S&P 500 but with significantly less risk.

Also notable is that the three best performing Sector SPDR ETFs year-to-date (YTD), and the only ones to outperform the S&P 500 (SPY), are, in order, Commmunication Services (XLC), Financials (XLF), and Consumer Discretionary (XLY).  The three most profitable SEAF Model signals during the same YTD period, also in order, are XLF, XLC, and XLY.  This means that SEAF correctly identified the best sectors to be in during 2024, ahead of time, before this outperformance occurred.  Finally, and especially important to us, is that SEAF has outperformed all four sector rotation-related ETFs that we could find.  In other words, we’re outperforming our peers, some with over $1 billion under management.

Bigger picture, since inception in June 2018, SEAF has outperformed the S&P 500 by 8.3% on an annualized basis with a 13% smaller maximum drawdown and a slightly lower beta.  We have also significantly outperformed our peers during this larger time period.  This is exceptional performance, we are very proud of it, and we hope you noticed.

Conclusion, Investment Implications, Strategy

In a very atypical year that saw investor assets frenetically jumping from sector to sector with few “sticky” trends, Consumer Discretionary (XLY),  Communication Services (XLC), and Technology (XLK) are again the SEAF Model’s top three sectors this week.  XLY has actually outperformed the S&P 500 by 17% since Oct 24th, quickly rocketing into the S&P 500’s third-best-performing sector in 2024 after doing little to nothing for most of the year.  At the other end of the spectrum, defensive Health Care (XLV) and economically sensitive Energy (XKE) are again the two worst-ranked sectors this week.

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.  Jack also displays and dissects our SEAF “Rainbow Charts” which display the past 12 months of Favored, Neutral, or Avoid rankings in these Sector SPDRs.

From The Video: This Week’s Major Themes
  • Money continues to aggressively move into Consumer Discretionary in All time periods.
  • Money aggressively moving back into Communication Services in All time periods.
  • Money gradually moving back into Technology 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.

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.

Table 1

Click the table to make it larger

Synopsis:  The latest data indicate a multi-timeframe trend of asset inflows into Consumer Discretionary and Communication Services.  This is where the money is currently going in the sector space.

The latest data also indicate a multi-timeframe trend of asset outflows out of Health Care and 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).

Consumer Discretionary: XLY

Cyclical Consumer Discretionary (XLY) is once again the SEAF Model’s best-ranked sector this week with a Ranking score of 4.  The upper panel of the chart below shows that this is the best (lowest number) SEAF Ranking for Consumer Discretionary since February.  The green highlights in Chart 1 below show that Consumer Discretionary initially moved into Favored status on Oct 24th while the lower panel shows that XLY has coincidentally outperformed the S&P 500 (SPY) by 17%.  

Chart 1

Communication Services: XLC

Economically sensitive Communication Services (XLC) is the SEAF Model’s second-best-ranked sector this week with a Ranking score of 6.  The upper panel of Chart 2 below shows Communication Services moved into Favored status on Nov 12th, while the lower panel shows that XLC has since outperformed the S&P 500 (SPY) by 3%.  As long as Communication Services retains its Favored status according to SEAF, recent relative sector outperformance is likely to continue.

Chart 2

Technology: XLK

Economically sensitive Technology (XLK) is the SEAF Model’s third-best-ranked sector this week with a Ranking score of 14.  Chart 3 below shows that Technology has atypically been bouncing erratically back and forth between Avoid and Favored status since May (upper panel) while the relative performance between XLK and the benchmark S&P 500 (SPY, lower panel) has mostly drifted sideways due to the lack of a sustained, consistent trend of asset flows.  The rightmost green highlights show that Technology has most recently edged back into Favored status on Dec 4th (upper panel) while XLK has coincidentally outperformed the S&P 500 (SPY) by 2% (lower panel).

 

Chart 3