Buyers Rotate into These Sectors as Tech Stalls

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Last week was rough for technology. But now investors are looking for gains in some new areas.

The SPDR Industrial ETF (XLI) and SPDR Health Care ETF (XLV) are the two best performing sector funds over the last month with gains of about 7 percent each. XLI is also on pace today for its highest close since mid-March, while XLV is pushing levels last seen in January.

We’ve covered the industrial story on Market Insights, including strong factory employment and capital spending. Some more of that news trickled out today as the Chicago MNI business index beat expectations. Even more important was a news report that China and the U.S. would resume negotiations to avert a trade war. Earnings were decent in the sector as well.

Health care has also been an earnings story. According to FactSet the sector is one of the biggest sources of upside surprises so far this reporting season. Companies in the group have also seen their growth rates accelerate more quickly than the broader market since the end of last month.

RadarScreen® showing sector funds with one-month performances.

Today, for instance, biotech-support company Illumina (ILMN) is leading the S&P 500 with a gain of 10 percent after beating estimates and raising guidance. CEO Francis deSouza cited “broad demand across applications” and “growing interest in genomic information.”

Merck (MRK) has been another winner this week as investors look for regulators to approve a new combination of its drugs as a cancer treatment. Taking a longer term view here are a few standouts:

  • HCA (HCA): The hospital operator has ripped 21 percent in the last month, thanks partially to a strong earnings report on July 25.
  • Eli Lilly (LLY): The drug maker is 16 percent in the last month and making a new 52-week high today.  Its most recent positive event is a plan to spin off its Elanco animal-health business.
  • Zimmer Biomet (ZBH): The medical-device maker has risen 13 percent in the last month but has yet to break out. Earnings were the catalyst.

Speaking of breakouts, did you see the potentially bullish call volume in Medtronic (MDT) in late June? They’re just now going in the money, with about three weeks until the next quarterly report.

And speaking of quarterly reports, don’t forget about Pfizer (PFE). It’s hitting a new 16-year high today after beating estimates. Investors seemed especially pleased with the traction for its Xeljanz (arthritis) and Lipito (cholesterol) drugs.

Bottom line: Tech might be reeling amid bad news from Facebook (FB), but today investors are finding value in new areas.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.