Leaders and Laggards
In the ever-evolving landscape of the US stock market, the performance of various equity sectors in 2024 tells a varied tale. While most segments have enjoyed upbeat performances, two notable exceptions stand out glaringly: consumer discretionary and real estate. These two sectors have found themselves struggling to keep pace with the broader market trends based on a set of Exchange-Traded Funds (ETFs) up to the market close on June 10.
On the flip side, shining brightly amidst the tumult is the communications services sector, which has emerged as the undisputed champion. Bolstered by companies like Meta, Alphabet, and Netflix, this sector has witnessed a remarkable surge of 16.8% year-to-date. This not only stands out as a stellar performance in absolute terms but also positions it as the sole sector outpacing the overall stock market’s growth of 13.1%.
The Underperformers: Consumer Discretionary and Real Estate Woes
Trailing behind in the race for market glory are consumer discretionary shares, depicting a fractional loss, and real estate stocks, which find themselves in the red by 4.1%.
The real estate sphere, symbolized by the XLRE ETF holding commercial real estate investment trusts (REITs), has encountered turbulence since the Federal Reserve’s commencement of interest rate hikes in early 2022. Despite REITs’ allure with their relatively high dividend yields, recent times have seen them struggling to compete with the allure of risk-free Treasuries in the investment arena.
While some view REITs as an enticing value proposition, accentuated by XLRE’s robust 3.51% trailing 12-month yield as per Morningstar.com, skeptics linger. With this near 80% of the current , some analysts see potential in REITs for capital appreciation following a challenging period. Still, the technical outlook for XLRE remains shrouded in uncertainty with its wavering price trends.
While a flicker of hope lies in XLRE’s recent rally from its late-2023 low, doubts persist regarding its future trajectory. A breakthrough above the recent peak could inject optimism in the near term, with expectations currently tempered to a potential trading range.
Eyeing the Horizon: Hope Amidst Uncertainty
Despite the challenges, XLRE has proven resilient by testing and maintaining its downside support around 32, suggesting a possible end to the turbulent times for REITs. While a favorable move by the Federal Reserve through a rate cut could provide a much-needed boost, such significant shifts are not imminent, as hinted by Fed funds futures.