Market declines and under performance can create opportunities. The table below looks at performance of the S&P 500 sectors over the past 90-days. As you can see the S&P has pretty much gone nowhere, yet two different sectors have been hit hard!
Not only has Real Estate and Utilities done poorly the past 90-days, they have under performed the S&P 500 for years!!! Below looks at relative performance of each compared to the S&P 500 since 2000.
The above charts reflect that it has “paid to avoid” these sectors on a relative performance basis. The question to ask yourself is this: Could the years of relative under performance turn into opportunities? These assets are testing potential support, and momentum is deeply oversold.
Below takes a look at the chart patterns of Real Estate (IYR) and Utilities (XLU) over the past decade:
XLU and IYR are each testing 7-year rising support with momentum at oversold levels. When momentum was this oversold in the past 5-year, each was closer to a low than a high.
Are you thinking that XLU and IYR will continue to do poorly because interest rates are going to rise? Below looks at the yield on the 10-Year note since 1999, reflecting that yields have increased by 88% over the past 80-weeks. This sharp of rally has only taken place one other time in the past 20-years!
The sharp rally in yields now them testing the top of its 6-year rising channel at (1),as momentum in the 10-year yield is the highest in years highlighted in the chart below.
Bottom line– We believe that XLU and IYR are presenting buying opportunities with nice risk/reward potential, as stops can be placed just below 7-year rising support lines.