The Nasdaq and S&P 500 are officially in correction territory. Well, The Daily Breakdown looks for the stocks that are rallying.
Friday’s TLDR
- Not all stocks are down this year
- A closer look at gold
The Bottom Line + Daily Breakdown
We recently talked about how diversification can help shelter a portfolio from increases in volatility. At that time, 9 of the 11 S&P 500 sectors were still positive on the year, while gold was up about 10% and bonds were positive on the year.
In many cases, a diversified portfolio would still be down on the year, but it would be better than the ~10% pullback we’ve seen in the S&P 500.
Diversification is one tool, relative strength is another.
Seasoned investors often look toward relative strength to find the stocks that are performing well relative to a specific benchmark. That benchmark could be vs. their sector — like how Apple or Amazon are performing vs. the tech sector — or against an index like the S&P 500 and Nasdaq 100.
Finding Relative Strength
The S&P 500 is down 10.1% from its record closing high, while the Nasdaq is down 13.3%. The indices are down 6.1% and 8.5% so far year to date, respectively.
Notably, 9 of the 11 S&P 500 sectors are still outperforming the indices on a year-to-date basis. When excluding tech and consumer discretionary — which account for roughly 40% of the S&P 500 weighting — the worst-performing sector is industrials, down just 2.3% this year.
Let’s dig into individual stocks.
I combed through the S&P 100 — the 100 largest US companies by market cap — to find stocks that are performing well relative to the S&P 500. Here’s what we found:
- 68 stocks are outperforming the S&P 500 on a year-to-date basis.
- Further, two-thirds of them (46) are actually positive so far this year.
- 30 stocks are outperforming the S&P 500 and Nasdaq 100 when it comes to the drawdown from their 52-week high.
- Impressively, all but one of them are actually positive on the year too (except MasterCard, which is down a paltry 0.2%).
Of the 30 stocks from the second bullet point, the 10 best performers so far this year include: Phillip Morris, Gilead Sciences, Amgen, AbbVie, General Electric, 3M Co, T-Mobile, Abbott Labs, Medtronic, and AT&T.
The next seven — IBM, Johnson & Johnson, Coca-Cola, Deere, RTX Corp, Altria and AIG — are all up at least 10% this year.
The Bottom Line
I realize I threw a lot of names out there, but my point is pretty simple: Almost half of the S&P 100 is actually positive on the year. That’s not to say this environment has been easy, as many of investors’ favorite stocks and sectors are under significant pressure.
Notice how not one mega-cap tech stock in the group above. That’s not to shun tech; it’s been a great long-term performer. But it pays to look outside of this group from time to time to find the stocks that are truly performing the best.
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The setup — Gold
The gold ETF — GLD — continues to chug higher. Shares are up more than 13% so far this year and have rallied more than 37% over the past 12 months.
This easily outperforms the S&P 500, which is down more than 6% so far this year and is up just 6.9% over the past year. Below is a look at physical gold, which is nearing $3,000 an ounce:
Ideally, bulls will want to see gold prices stay above the $2,920 to $2,950 zone. On the GLD, that roughly translates about $270 to $272.
If gold moves below those levels, it’s not necessarily the end of the world, but it’s where the trend would start to lose its short-term momentum. Over the long term though, it’s hard to deny that this asset has done quite well.
Options
For options traders, calls or call spreads could be one way to trade GLD on the long side. In these scenarios, options buyers limit their risk to the price paid for the calls or call spreads, while trying to capitalize on a bounce in the stock.
Conversely, investors who expect downside could speculate with puts or put spreads.
To learn more about options, consider visiting the eToro Academy.
Disclaimer:
Please note that due to market volatility, some of the prices may have already been reached and scenarios played out.