Price Action & Performance
XLY broke out at the beginning of July, but has since been running to stand still, registering new highs before a sharp correction mid-month and a positive resolution. Breadth is a bit narrow as several industries within the Sector remain challenged. We like this prospect at this point in the cycle given the rotation into laggards observed over the past month.
At the industry level, Homebuilders have surged which typically has an important halo effect for the sector as HD and LOW are among the biggest weights in Specialty Retai Industry which is also improving near-term performance. AMZN and TSLA will likely have a big say in the Sector’s performance in July. Both names start the month at oversold levels which speaks to lowered expectations heading into earnings.
Economic and Policy Drivers
Interest rate policy expectations have pivoted for Staples. Upwards pressure has come off costs in the labor market as well as input costs from lower Commodities prices in 2024. We will look to the reaction from interest rates including the US 10yr Yield (which mortgage rates are indexed to) to help us consider the magnitude of upside potential for the housing market. Further lower rates are likely to increase nominal home values creating more borrowing capacity for the consumer. The seeds to further sustain the bull market are starting to show up.
In Conclusion
XLY remains in a bullish reversal price structure. The XLY is an OVERWEIGHT position for August in the Elev8 Model Portfolio with a +2.54% allocation vs. the S&P 500 weight.
Chart | XLY Technicals
- XLY 12-month, daily price (200-day m.a. | Relative to S&P 500 )
- The bullish reversal that started in late May is at a critical juncture. We are betting on upside resolution in August
Data sourced from Bloomberg
