The Sectors to Ride ’til 2025

History shows these sectors remain strong in the back half of the year [TradeSmith Daily logo] [TradeSmith Daily logo] July 9, 2024 The Sectors to Ride ’til 2025 By Lucas Downey, Contributing Editor, TradeSmith Daily After a stunning first half, with the S&P 500 up 14.48%, it’s time to take stock of what sectors are positioned to gain in the coming months. Last week, we reviewed history and found that strong first halves for the market only mean the good times will keep rolling. When the market gains 10% or more in the first six months, [that momentum continues]( with more outperformance in the back half. But are we just going to ride the benchmarks higher? Why do that when we can do better buying the winners? So today, with a tailwind pushing us forward, let’s dive down to the industries set to keep climbing... First, we’ll check in on the top areas of the market so far in 2024. Then we’ll learn which sectors tend to thrive in the final two quarters. As a bonus, I’ll include a top-ranked stock in a sector set to climb into year-end... SPONSORED AD [Warren Buffett, Jeff Bezos, Michael Bloomberg, & 48 Members of Congress Are Buying ONE Sector...]( Why are Warren Buffett, Jeff Bezos, Michael Bloomberg, “The Walmart Family”, Bill Gates, and 48 members of Congress shifting their stocks in a frenzy? [And why are they all piling into ONE unique corner of the market...]( This corner of the market is NOT artificial intelligence... Crypto... gold... energy... bonds... dividends... options strategies... or any other familiar sector or strategy. Instead... - [It’s a sector that the U.S. Gov’t spends 6-TIMES more on, than our own ENTIRE military defense budget](. - It’s a sector that is expected to grow another $10 trillion... - And save an estimated 14 million lives per year, in the process. The last time we saw the world’s wealthiest investors move their cash into this corner of the market... Stocks exploded 2,020%... 5,609%... Even as high as 8,437% in just ONE year. Now, it’s all happening again. [Click here for the details]( Technology Stocks are Pulling the S&P 500 Higher It’s no secret that mega-cap tech stocks are partly responsible for the crowd-stunning rally. Behemoths like Nvidia (NVDA) and Google-parent Alphabet (GOOGL), up 167% and 37% year-to-date, respectively, are taking all the action. (Disclosure, I own GOOGL.) An easy way to visualize this dominance is with the SPDR Select Technology Fund (XLK). The ETF has gained 21.2% (black line below), compared to the S&P 500’s (SPY ETF) 15.4% climb (orange line): But this image doesn’t fully capture the sheer weight of mega-cap growth on the entire market. When you visualize all sector returns in the first half, you notice two areas are head and shoulders above the rest: Information Technology and Communication Services. Combined, those two sectors make up 41% of the market cap! I’ve circled the 27.79% and 26.09% gains for those sectors... without them, the market would’ve had a far lower performance: But now that June is in the books, let’s see which areas historically blossom in the back half of the year. To study this, I went back to 2002 and averaged all S&P 500 sector returns. The top three performing areas in the final two quarters are: - Information Technology, with an 8.21% lift - Followed by Industrials, with an average gain of 6.08% - And Materials, with an average jump of 6.03% Also notable from this chart is the outperformance in Financials and Consumer Discretionary names. And let’s not leave out the big laggards: Energy, Utilities, and Communication Services. So, in general, you’ll want to hold your tech stocks through the second half of the year. But this is no ordinary year. This is a stunner of a year… where the S&P 500 has already achieved its long-term annual return, with half the year still to come. Given that, I wanted to see how sectors perform in the second half of the year, after the rare periods when the market is up at least 10% through June. Since 2002, that’s occurred five times before this year: 2003, 2013, 2019, 2021, and 2023. Below you can see the S&P 500 second-half sector returns when the S&P 500 gains at least 10% in the first half. After a monster first half, the back-half leaderboard includes: - Information Technology, with an eye-popping gain of 17.04% - Materials, with a 13.32% surge - And Consumer Discretionary, with an enviable 11.18% jump Other notable areas include Industrials and Financials, which essentially came in line with the market’s average gain of 10.83%. But I’m fine with telling you to overweight Technology into the final months of the year. A few short weeks ago we proved how [you should not get off the Tech train]( just yet, as software and semiconductor names perform well in the latter months of the year. So now, let’s zero in on one all-star name in the hot AI arena. SPONSORED AD [Legendary Trader: “The Next 30 Days will be Critical for AI Stocks”]( Tom Gentile is a legendary trader who predicted the rise of Nvidia back in 2019... Giving his readers a chance to turn $10,000 into more than $320,000. You won’t believe what he’s predicting for AI stocks next. [Click here now to see this exclusive interview because the next 30 days will be critical](. Arista Networks (ANET) is a fast-growing network hardware player. As AI bandwidth needs are only increasing, speed is paramount. Companies are turning to Arista for high-quality networking needs. And business has been booming in recent years. From 2019 to 2023, sales have more than doubled from $2.4 billion to $5.8 billion. And the fun isn’t stopping, as 2025 estimates peg sales to reach $7.8 billion. Marry this with the fact that net income stood at $860 million in 2019 – and is set to reach nearly $2.9 billion in 2025... this is one superstar business. It shouldn’t come as a surprise that the stock has crushed the market in 2024. Shares are up 54% (black line below), versus 15% for the SPY (orange line): And to round out the final litmus test for a company, I turn to the reliable Quantum Score. When a company is firing on the fundamental and technical front, it gets my blessing. Here we can see ANET with the greenlit score of 91.4, which is comprised of a 91.7 fundamental rank and a 91.2 technical rank. Rarely will you find a company ranked with such high scores: And this is why my business partner, Jason Bodner, was able to recommend ANET to his [TradeSmith Investment Report]( subscribers nearly a year ago at $163.91... that’s an increase of 118%, for those keeping score. If you’re looking to wager on market strength in the final months of the year, XLK could be a good fit, given that Technology stocks tend to outperform in high-momentum markets. But if you’re like me and continuously hunting for outlier stocks, consider adding Arista Networks to your watchlist. Better yet, [sign up for TradeSmith Investment Report]( and get introduced to market-beating stocks that aren’t on the lips of the media. That’s a winning back-half gameplan, if you ask me. Regards, Lucas Downey Contributing Editor, TradeSmith Daily P.S. If you’re looking for a great short-term trading plan for the second half of the year, be sure to [check out this message]( from our friends at Gulfport Analytics. Their chief analyst, Tom Gentile, has an unusual take on AI stocks. Even as the AI stock bonanza trudges on, Tom insists that anyone looking to make the most of them should hold them no longer than 30 days. Tonight at 8 p.m. Eastern, he’ll reveal what you need to know to trade the “Final Phase” of AI. [Click here to automatically register for his free webinar](. Get Instant Access Click to read these free reports and automatically sign up for research throughout the week. [25 Doomed Blue Chip Stocks]( [3 Stocks to Build Your Wealth in 2024]( [5 Unapologetically Profitable Stocks for 2024]( © 2024 TradeSmith, LLC. All Rights Reserved. P.O. Box 340087 Tampa, FL 33694 To unsubscribe or change your email preferences, please [click here](. [Terms of use]( | [Privacy Policy](