There have been a select few sectors that have been able to outperform the market since the start of the year until the April bottom and since then.
Since putting in a bottom in April, technology and growth-oriented sectors have been the best-performing areas of the market. However, they were also the weakest throughout first few months of the year. Most other sector funds outperformed the S&P 500 Index (SPX) from the end of 2024 until the April 7th bottom, but almost all those groups have underperformed since then. There are a few sectors that either outperformed or underperformed the SPX this year leading up to the April bottom and after. Both lists are small, pointing to the high relative strength or weakness of those sectors, which are both important to note. Looking at a universe of US iShares sector funds, the iShares U.S. Aerospace & Defense ETF (ITA), iShares U.S. Industrial ETF (IYJ), and iShares Dow Jones U.S. Financial Service ETF (IYG) were the only three that outperformed the SPX over the periods 12/31/2024 – 4/7/2025 and 4/7/2025 – 6/2/2025. On the other side of the coin, the iShares U.S. Regional Banks ETF (IAT), iShares U.S. Transportation ETF (IYT), iShares U.S. Oil Equipment & Services ETF (IEZ), and iShares U.S. Home Construction ETF (ITB) all underperformed the SPX over both periods pointing to both upside and downside relative weakness.
Out of the three sector funds that outperformed over both periods, the iShares Dow Jones U.S. Financial Service ETF (IYG) is the most actionable at current levels. IYG has a fund score of 5.55, trades on a buy signal, and is trading in normalized territory within its ten-week trading band. The broader financial sector has been a consistent area of strength as it has earned a top three spot in the DALI rankings for over a year. While financials remain strong for the most part, regional banks have been a subgroup to avoid. The iShares U.S. Regional Banks ETF (IAT) was one of the four sector ETFs that has underperformed the S&P 500 from the start of the year until the April bottom and thereafter. So, for those looking for exposure to the financial sector, focus on the larger names.
Perhaps the most interesting sector fund that underperformed over both periods is the iShares U.S. Home Construction ETF (ITB). Homebuilders had been one of the strongest groups in the market over the last few years until the end of 2024 when technical weakness showed up in ITB’s fund score after it dropped below the acceptable 3.0 reading in December. After putting in a bottom in April and briefly returning to a positive trend in early May, ITB began to head back down and moved back into a negative trend later in the month. ITB is also one of two the ETFs in the table above to put together negative performance over both periods, the other being the iShares U.S. Healthcare ETF (IYH). Overall, the few sectors that have either outperformed or underperformed the SPX over both periods observed give us valuable information into the sectors that hold consistent relative strength or weakness. Those that have outperformed consistently are areas to look for new ideas, especially in the individual stock space.
