Good morning, friends! I wanted to share a quick write-up on two sectors showing relative strength vs the broader market that deserve to be added to your watch list.
The XLV ETF seems to have bottomed and looks to be preparing for a run. The chart above shows the ETF vs the S&P 500, and the relative strength is very encouraging.
Healthcare is a necessary expense, as a result it's a safer income stream than discretionary spending, or many services, and thus the sector is considered to be more defensive. It's also a part of the market that tends to benefit at the end of the economic cycle, such as where we are no.
Long exposure to XLV could potentially be constructive in building a long/short portfolio, or opportunistically during countertrend rallies. The likes of which we may be seeing the early stages of now.
Utilities are also showing impressive relative strength, and breaking out vs the S&P 500, making them an attractive allocation target for me. Like healthcare, utilities are a necessity. They are also benefiting in the short-term from lower energy input costs.
Also similar to healthcare, utilities could be part of building out a long/short portfolio as a more defensive holding, or as a part of a long countertrend bounce strategy that is lower beta.
Playing defense is still a key way to be successful in 2022, and XLV as well as XLU are defensive parts of the market showing strength that makes them worth watching.