Decoding the S&P 500: A Tale of Uneven Triumphs - S&P 500 sector analysis - Part 2

As the S&P 500 index charts its course upwards, a casual observer might be tempted to assume a widespread rally across all its sectors. However, this surface-level view masks a more complex and intriguing reality. In part two of our S&P 500 sector analysis, we peel back the layers to reveal the state of the 11 distinct sectors comprising this bellwether index.

While the index's recent rise suggests a broad-based bull market, our deep dive uncovers a different narrative. Not all sectors are participating equally in this ascent. Some are indeed in robust bull market territory, thriving under current economic conditions, while others are struggling to keep pace, reflecting the varied impacts of macroeconomic factors and sector-specific trends.

There is one clear sector winner to rule them all and one sector that looks much worse than anticipated. One sector may have entered the initial stages of a bull market - a sector usually seen with the utmost skepticism. On the other hand, a highly recommended sector seems to have just turned the tide and entered bear market territory.

The other analyzed sectors are in-between, a bit of a bull and a bit of a bear market.

S&P 500 Industrials [Sector] ($SRIN), 866.21 +11.45 (+1.34%) 11/10/23 [INDEX/S&P]

The S&P 500 Industrials sector flashed a short/medium-term buy signal. The long-term trend is still bullish. The index found support at the lower trendline and bounced upward in late October.

While I see a short/medium-term buy signal, I cannot yet see the typical properties of a 5-leg impulse wave from the lows in spring 2020. But this may be in the process of forming just now.

The Stochastics Indicator also flashed a buy signal.

The recent down phase took the form of a five-leg wave. This may indicate that the current wave-up is corrective in nature, has a 3-leg structure, and may not reach new ATHs.

If so, this would confirm that the sector is not in a secular bull market.

And now?

We suggest only entering tactical trades and underweight exposure to the sector at the index level.

The situation is quite different at the individual stock level, as the sector is composed of stocks showing very different price action patterns. Stock picking is king - see the sector's components in the table below, incl. performance.

S&P 500 Materials [Sector] ($SRMA) 486.80 +5.57 (+1.16%)

The S&P 500 Materials sector broke its long-term upward trend in 2023. It just flashed a short/medium-term buy signal, though. The long-term trend is sideways/lower.

The index faces resistance at the lower trendline, which it broke in 2023.

The recent move down took the form of a 5-leg impulse wave. This is bearish. The current move up may thus take the form of a 3-leg corrective move. The first resistance is at the top of wave 4. The second resistance is at the top of wave 2.

The current move-up has already stalled. The index must rise above the top of wave 4 and close the September gaps to exhibit a more favorable technical picture.

The downward trend that started in late July 2023 is still in place.

And now?

We suggest only entering tactical trades and underweight exposure to the sector at the index level.

The situation is quite different at the individual stock level, as the sector is composed of stocks showing very different price action patterns. Stock picking is king - see the sector's components in the table below, incl. performance. Linde PLC has a bullish chart pattern and a beat-and-raise earnings picture.

S&P 500 Real Estate [Sector] ($SRRE) 215.43 +2.34 (+1.10%)

The sector may just have entered the initial stages of a new bull market.

Completion of a large a-b-c correction in late October 2023 is most likely.

A final 5-leg corrective wave c, following a complex sideways wave b, may just have been completed.

This would mean there won’t be a real estate crash in the US and that depressed property prices may recover soon.

This fits nicely with the assessment of the S&P 500 Financials, which is also in much better shape than believed by most analysts.

And now?

We suggest entering strategic positions and gradually overweight exposure to the sector at the index level.

We strongly advise focusing on the financially soundest stocks in the sector. Stock picking is king - see the sector's components in the table below, incl. performance.

S&P 500 Utilities [Sector] ($SRUT) 305.68 +1.57 (+0.52%)

The sector may just have completed an a-b-c correction. It has not yet broken out of the reigning downward trend - neither the long-term one in place since early 2022 nor the short-term one in place since summer 2023.

The sector flashed a short-term buy signal and may be about to complete an initial 5-leg impulse wave.

If so, this would be bullish, indicating that the sector may reach the top from summer 2022 quite soon.

The index must not fall below the top of wave 1. The lower trend line must hold. Inflation figures due this week will decide whether the trend will be up or down again.

And now?

We suggest entering tactical positions only and having an equal weight stance to the sector at the index level.

We strongly advise focusing on the financially soundest stocks in the sector. Stock picking is king - see the sector's components in the table below, incl. performance.

S&P 500 Communication Services and S&P 500 Information Technology display a chart and Elliot Wave pattern, which differs substantially from the other sectors of the S&P 500.

A kind of alert structure that may not be obvious given all the talk about the forthcoming AI revolution.