Stock Talk #2: Upleg and YTD Out and Underperformance

On Monday, March 23, the market hit either a temporary or long-term bottom.

From there, SPY (recall, the weighted average by market cap of 500 stocks, of which 10 contribute to 50% of the market cap) has surged 15.6% over 6 trading days (measured from market close on 3/23).

I want to return to the sector comparison chart from yesterday, but show data from 3/23 onward to prove that returns across sectors since the “bottom” aren’t evenly distributed:

Utilities interestingly still outperform, but now energy, industrials are all outperforming the market. Recall YTD that these sectors are getting hosed by SPY:

So to review, here are the only sector trades that would’ve worked YTD and during this mini-rally, where works means “outperformed SPY”:

– XLU (Utilities)

– XLRE (Real Estate)

– XLV (Health Care)

Here are the top holdings from each of these names:

These names are trades that are working – Next Era specifically is impressive to me, as it’s up YTD and surging during the upcycle. All three of these stocks have beat the market YTD and during the mini-rally.

I think this data is meaningful because it combats the narrative that this up-market since 3/23 is dominated by low quality names. These three sectors worked during the downleg and upleg.

On the other end of the spectrum, XME (Metals and Mining) and XLY (Consumer Discretionary) have both underperformed the market YTD and during the mini-rally. However, the same analysis with the top holdings doesn’t work; both Newmont (XME’s top holding) and AMZN (XLY’s top holding) have outperformed the market YTD (although have lagged in the mini-rally):

I want to continue to do this same analysis to the extent that we see more prolonged uplpegs and downlegs in this market. Will the same sectors continue to outperform and underperform?

Update from yesterday – XOM’s dividend
I suggested yesterday that it was unlikely XOM would cut its dividend. Reader Diligent Dollar (whose blog and twitter I highly recommend subscribing to) sent me the following note yesterday AM:
 XOM:Cash from operating activities: $29,716Capex: -$24,361FCF: $5,300Capex in 2016: $16,000 (trying to determine bare bones capex) Add differential back to LTM cash flow: 8,361Adj Fcf: $13,716XOM Dividends: $14,652So assuming earnings stay flat this year (CFO) and they cut capex significantly, the dividend is not close to being covered. 

A Morgan Stanley analyst suggested XOM would fund capex with debt and not cut the dividend. So, I could see this going either way, but the point stands XOM will need to either issue debt or cut the dividend.

Trade well,