“Right” Kinds of Stocks Lead the Market Surge, Pointing to Staying Power

When I was a kid, my mom doled out a lot of oatmeal for breakfast. She tried to spice it up with brown sugar or raisins sometime, and of course, it met my nutritional needs. But let’s be honest: It didn’t serve up the same kind of satisfaction as a sky-high plate of bacon and eggs!

I feel the same way about a stock market led by utilities, consumer staples, REITs, and other defensive sectors. Sure, they can still boost the averages. But those plodding, punch-less sectors lack the pizzazz of other growthier, sexier groups.

That’s why I’m so encouraged by this latest market surge: The “right” kinds of stocks are leading it.

Take a look at this sector-focused Screener I created using the tools available at the Weiss Ratings website. It includes ETFs that track several of the major market sectors, as well as the iShares Russell 200 ETF (IWM, Rated “B”) and the SPDR S&P 500 ETF (SPY, Rated “B”). I sorted in descending order by 5-day total return through mid-week in order to capture how these ETFs performed during the recent market surge.

Data as of 04/26/17

Which sector ETF performed the best? The Financial Select Sector SPDR Fund (XLF, Rated “B”) with a return of 2.8%. ETFs for the industrials, the Russell 2000, materials, and technology came next. But the iShares U.S. Real Estate ETF (IYR, Rated “B”) actually lost around 1.2%, putting it in last place, while ETFs for the consumer staples and utilities sectors also lagged the market.

If you broaden out the search to look at ALL ETFs with at least a “C-” or better rating, and exclude leveraged products, you find something else very interesting. Foreign-focused funds dominated, led by the iShares MSCI France ETF (EWQ, Rated “C”).

That doesn’t surprise me in the least. I’ve been highlighting the opportunities available in foreign markets for some time now. Plus, I wrote in advance of the French vote that Frexit Fears were overblown (in a column that was subsequently published early Monday and that you’d be better off buying (rather than selling) into, and after, the event.

Finally, if you look at which individual stocks have led this move, you see that it’s a nice mix of companies in a host of growth-focused industries. This “April Stock Surge Leaders” Screener shows you what I’m talking about.

Data as of 04/26/17

Semiconductor equipment maker Lam Research (LRCX, Rated “B+”) led the way, followed by a variety of companies in industries like software and services, transportation, capital goods, and materials. Strong quarterly earnings, realized benefits from past acquisitions, and encouraging commentary from management about growth drove those gains, offering more encouragement.

Nothing against Quaker Oats. But I’ll take an eggs-and-bacon market like this one anytime! And as long as the market keeps serving them up, you’d do well to stay long my favorite stocks and sectors.

Until next time,

Mike