Most U.S. stock sectors have grown this year, with two exceptions

The strong rally of the US stock market since the beginning of 2024 has been widely supported among equity sectors. Two glaring exceptions: consumer stocks and real estate stocks, based on a set of ETFs through Monday’s (June 10) close.

On the other hand, the communications services (XLC) sector is the clear leader. Indeed, this fund, which includes companies such as Meta (META), Alphabet (GOOG) (GOOGL) and Netflix (NFLX), is up 16.8% this year. Not only is this a strong performance in absolute terms, but it also outperforms the broader market (SPY), which is up 13.1%. In fact, XLC is the only sector to outperform stocks overall in 2024.

The losers this year are limited to consumer discretionary stocks (XLY), which are reporting a fractional loss, and real estate stocks (XLRE), which are in red by 4.1%.

XLRE owns commercial real estate investment trusts (REITs), which have struggled since the Federal Reserve began raising interest rates in early 2022. REITs are valued for relatively high dividend payouts, but competition from risk-free Treasuries is fierce beat recently.

Opponents say REITs are an intriguing value play. According to Morningstar.com, an important factor is XLRE’s 12-month yield of 3.51%. This is almost 80% of the current yield on 10-year treasury bonds. Add to that the potential for capital appreciation in REITs (if you’re so inclined) after a difficult few years, and the prospects look relatively attractive, some analysts say.

Perhaps, but XLRE’s technical profile still leaves room for doubt. The ETF has recovered from its late 2023 low, but the price trend still looks weak. The outlook, from a technical perspective, will be brighter if XLRE manages to break above its recent high of ~40. This breakout may occur in the near future, but at the moment optimism is limited to the expectation of a trading range.

On the other hand, XLRE tested its downside support at around 32 and it has been held for now. This is a sign that the worst may be over for REITs. The Fed cutting interest rates would help, but according to Fed Funds futures, that’s not yet possible in the near future.

Original post

Editor’s note: The summary bullets for this article were selected by Seeking Alpha editors.