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Weighting Recommendations
| Fidelity provides investors with sector weighting recommendations from top-performing firms such as S&P and Ned Davis Research to help further refine your analysis. Some sectors get "over-" or "market-" or "under-" weighted - which means that the analysis recommends that more, or the same, or less emphasis, of the industry sector at particular times should be held in your portfolio. Planning, analysis, and understanding elements that may impact the performance of sectors, such as business cycles, help reveal the emphasis on industry sectors in which investments should be made, as well as when to make them. See Sector Education to learn more. |
How to read sector weighting recommendations
Overweight
Overweight implies that an equity portfolio should have more than the benchmark weight. The amount on investor would want to overweight is a function of his or her investment objectives and risk tolerance.
Marketweight
Marketweight implies that an equity portfolio should have the benchmark weight.
Underweight
Underweight implies that an equity portfolio should have less than the benchmark weight. The amount an investor would want to underweight is a function of his or her investment objective and risk tolerance.
Modest Overweight
Modest Overweight implies that an equity porfolio should have modestly more than the benchmark weight. The amount an investor would want to be modestly overweight than the benchmark weight is a function of his or her investment objective and risk tolerance.
Modest Underweight
Modest Underweight implies that an equity portfolio should have modestly less than the benchmark weight. The amount an investor would want to be modestly underweight than the benchmark weight is a function of his or her investment objectives and risk tolerance.
Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends marketweighting the S&P 500 Consumer Staples sector. Year to date through January 22, this sector, which represented 11.5% of the S&P 500 Index, was down 1.1% compared with a 2.1% drop for the S&P 500. In 2009, the sector index rose 11.2% versus a 23.5% increase for the 500. There are 12 sub-industry indices in this sector, with Household Products being the largest, at 22.4% of the sector's market value.
S&P analysts' fundamental outlook for the sector is neutral. We believe consumers are trading down to private label brands and that this is hurting demand for national branded products and crimping profit margins. Also, inventory de-stocking by retailers and consumers is a sales headwind. Offsetting these factors are what we view as relatively attractive valuations and dividend yields, the likelihood of more modest commodity price inflation and the inelasticity of demand for this defensive sector's products. The S&P 500 Consumer Staples sector trades at 14.0X 2010 estimated EPS, a slight discount to the projected P/E of 14.3X for the broader market. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 1.4X is slightly below the broader market's 1.5X. Lastly, the sector's marketweighted STARS average of 3.9 (out of 5.0) is slightly above the average of 3.8 for the S&P 500.
The S&P Consumer Staples Index has lost its upside momentum, as prices have drifted sideways over the last two months after the mid-November breakout to recovery highs. This breakout corresponded to a move into a heavy layer of chart resistance that runs from 274 up to 300. Relative strength versus the S&P 500 has been in a downtrend since March 2009, but the RS line is tracing out a bullish wedge pattern, signaling the potential that the sector is bottoming against the 500. Trendline support off the lows since May has been taken out, and this opens the door for a test of chart support at the breakout point of 274 and the 17-week exponential average at 272. From a momentum standpoint, the 14-week RSI has traced out a bearish divergence from overbought territory. With a pullback looming for the overall market, in our view, we have raised our technical view on Staples to neutral, from neutral with a bearish bias.
In summary, our marketweight recommendation reflects our view that while sector demand remains relatively inelastic, margins are nevertheless being negatively impacted by consumers trading down.
Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends marketweighting the S&P 500 Energy sector. Year to date through January 22, the S&P Energy Index, which represented 11.5% of the S&P 500 Index, was down 1.7%, compared to a 2.1% drop for the S&P 500. In 2009, this sector index rose 11.3% versus a 23.5% increase for the 500. There are seven sub-industry indices in this sector, with Integrated Oil & Gas by far the largest at 57.9% of the sector's market value.
S&P Equity analysts believe the past year's surge in oil prices will moderate. They see crude oil averaging $77.13 in 2010, roughly in line with current levels. In addition, we are neutral on most of sector's sub-industries. The sector's recent valuation of 12.5X estimated 2010 EPS is slightly above its long-term median as the unpredictability of oil prices leads investors to generally assign this sector a much lower valuation than the broader market. The 2010 projected P/E of the S&P 500 is 14.3X. The sector's P/E-to-projected-five-year EPS growth rate (PEG) ratio of 3.7X is well above the broader market's 1.5X. This sector's marketweighted S&P STARS average of 4.2 (out of 5.0) is above the S&P 500's average of 3.8.
The S&P GICS Energy Index appears to be tracing out a potential double top, and, in our view, it was disappointing that the sector could not garner much follow-through following its major breakout in October. To complete a double bottom, prices would have to break below the 418 level, which was the most recent low in mid-December. Prices are close to breaking below trendline support off the bear market lows in March, which would be technically bearish, in our view. Besides chart support down at 418, the 17-week exponential average comes in at 430, while the 43-week exponential is also down at 418. Bearishly, relative strength versus the 500 is still in an intermediate-term downtrend, and is in danger of breaking the lows traced out in October 2008. Crude oil's recent breakout to recovery highs has failed, another bearish development, while the 'smart money' commercial hedgers are net short crude oil by a large margin. From a technical perspective, we have downgraded Energy to neutral with a bearish bias, from neutral.
In all, we recommend marketweighting the Energy sector as we think market outperformance is unlikely as crude oil likely remains range bound.
Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends marketweighting the S&P 500 Financials sector. Year to date through January 22, the S&P Financials Index, which represented 14.5% of the S&P 500 Index, declined 1.5%, versus a 2.1 drop for the S&P 500 Index. In 2009, this sector index rallied 14.8%, versus a 23.5% rise for the 500. There are 20 sub-industry indices in the sector, with Other Diversified Financial Services being the largest at 26.0% of the sector's market value.
Fundamentally, S&P analysts have a neutral view on the sector. Overall, we project consumer-based businesses in the U.S. to stabilize somewhat in 2010. However, we think that rising charge-offs on credit card loans and commercial loans due to higher unemployment will keep pressure on earnings. Still, given the large banks' diversified earnings streams, we think they are in a good position to withstand these negatives. One of our concerns is a rise in unemployment, which would likely raise cumulative loan losses. We are also wary of potential new government regulations that could limit profitability. We expect regulatory uncertainty to remain an overhang on stocks in the group until more information becomes available on potential laws. The sector trades at a multiple of 32.3X estimated 2010 earnings, well above the projected 14.3X P/E of the S&P 500. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 4.1X is also well above the broader market's 1.5X. This sector's marketweighted S&P STARS average of 3.9 (out of 5.0) is slightly above the S&P 500 average of 3.8.
The S&P Financials Index remains in a fairly tight trading range between 185 and 211 and has been holding up better than the broad market of late. There was some early year strength that took prices up near the top of their recent range, but with the latest weakness in the overall market, the sector has been unable to break to new recovery highs. Besides chart support at 185, both the 17-week and 43-week exponential averages are sitting between 190 and 195. Any pullback to support, followed by a strong rally would open the door for additional gains, in our view, as there is little overhead supply until up near the 250 area. On a technical basis, we have raised Financials to neutral with a bullish bias, from neutral.
As a result of our neutral fundamental and technical outlooks, we recommend marketweighting the Financials sector.
Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends overweighting the S&P 500 Health Care sector. Year to date through January 22, the S&P Health Care Index, which represented 13.1% of the S&P 500 Index, was up 1.5%, compared to a 2.1% drop for the S&P 500. In 2009, this sector index rose 17.1%, versus a 23.5% advance for the 500. There are 10 sub-industry indices in this sector, with Pharmaceuticals being the largest, at 50.9% of the sector's market value.
S&P Equity analysts have a positive fundamental outlook on the sector based on favorable outlooks for key sub-industries such as Pharmaceuticals, Biotechnology and Managed Care, which combined represent roughly three-quarters of the sector's market cap. We believe the chances for passage of a comprehensive health care reform package have declined significantly and that even if a compromise becomes law, it is likely to be much less onerous than what investors had expected earlier. In addition, we forecast continued robust M&A and partnerships activity within the Pharmaceutical and Biotech groups, as these methods are the fastest options to shore up pipeline gaps as we near the "patent cliff" of 2011 to 2013. The sector's 2010 estimated P/E of 12.0X represents a discount to the broader market's P/E of 14.3X. The Health Care sector is forecast to post 14% EPS growth in 2010. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 1.3X is below the market's PEG ratio of 1.5X. This sector's marketweighted S&P STARS average of 3.9 (out of 5.0) is slightly above the average 3.8 for the S&P 500.
The S&P GICS Health Care Index has been one of the strongest sectors in 2010, and is close to pushing into the next zone of chart resistance between 390 and 425. While this may slow the pace of the advance, we think further gains are ahead. Bullishly, in our view, relative strength versus the S&P 500 has pushed to another new high since bottoming out from a descending wedge pattern. The sector recently took out chart resistance from the key pivot lows in 2005, 2006, and 2008. The rising 17-week exponential average is well above the 43-week exponential average, a bullish sign, in our opinion. We have raised our technical outlook on Health Care to bullish, from neutral with a bullish bias.
In summary, we recommend overweighting this sector as we believe an improving fundamental outlook, low valuations and improving technical prospects will combine to drive alpha.
Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends overweighting the S&P 500 Industrials sector. Year to date through January 22, the S&P Industrials Index, which represented 10.5% of the S&P 500 Index, rose 0.4%, compared to a 2.1% drop for the S&P 500. In 2009, this sector index advanced 17.3%, versus a 23.5% increase for the 500. There are 18 sub-industry indices in this sector, with Aerospace & Defense being the largest at 26.9% of the sector's market value.
S&P analysts have a positive fundamental outlook on the Industrials sector due to expected benefits from an improving global economic picture as well as a yet-to-be-felt favorable impact anticipated from the infrastructure spending package and widespread inventory restocking. Also, the group is increasingly global in scope. In 2008, the S&P 500 Industrials sector derived roughly 46.1% of its sales internationally. As a result, we expect stronger overseas growth, most notably in emerging markets, to boost sector's EPS outlook. The sector's EPS are expected to rise 12% in 2010, according to S&P. The sector trades at 16.1X estimated 2010 EPS, versus 14.3X for the broader market. Its P/E to projected five-year EPS growth rate of 1.5X is equal to the broader market's 1.5X. The sector's marketweighted S&P STARS average of 3.8 (out of 5.0) is in line with the average of 3.8 for the S&P 500.
The S&P Industrials Index is pulling back after recently rallying to bull market highs. Prices have just taken out trendline support off the lows since July, a warning sign, in our view, and we think some support levels underneath current prices will be tested. Chart support, from the price consolidation in the fall, comes in between 220 and 240. Additionally, the 17-week exponential average sits at 240 and the 43-week exponential lies at 229. Once this pullback ends, we think there is additional upside for Industrials as there is little resistance, in our view, until way up near the 300 zone. Relative strength versus the S&P 500 recently broke out to a new recovery high, but is pulling back due to the overall weakness in the market. We remain bullish on Industrials from a technical perspective.
We recommend overweighting this sector, as we think the global economy will be stronger in 2010 than in 2009, and that this will be reflected in this cyclical sector's profitability. Also, from a valuation standpoint, we believe the sector offers better value than other economically sensitive areas.
Sector Commentary from Standard & Poor's
02/07/2010
S&P Equity Research recommends marketweighting the S&P Information Technology sector. Year to date through January 22, the S&P Information Technology Index, which represented 19.3% of the S&P 500 Index, was down 5.0%, compared to a 2.1% drop for the 500. In 2009, this sector index rose 59.9%, versus a 23.5% gain for the 500. There are 15 sub-industry indices in this sector, with Computer Hardware being the largest at 26.4% of the sector's market value.
S&P equity analysts are positive on the technology sector for 2010. We expect a return to revenue growth across many sector sub-industries. We think the sector is poised to benefit from a healthier global economy, a notable PC replacement cycle, and considerable international exposure. We see the potential for margin improvement, following notable cost management in 2009. In our view, strong and flexible balance sheets will be increasingly employed to generate value through internal investment, stock buybacks, dividends and M&A. S&P projects the sector index to post a 32% increase in 2010 operating EPS, versus a 36% advance seen for the S&P 500. The sector trades at a P/E on estimated 2010 EPS of 16.2X, versus 14.3X for the S&P 500. Its P/E to projected five-year EPS growth rate of 1.2X is below the broader market's PEG of 1.5X. This sector's marketweighted S&P STARS average of 3.8 (out of 5.0) is in line with the average of 3.8 for the S&P 500.
The S&P GICS Information Technology Index has struggled in recent weeks after pushing into the beginning of strong chart resistance that starts in the 340 region. This heavy overhead supply runs all the way up to 400 so we think that prices may have to pull back or correct before attempting another advance through this area. Relative strength remains in a strong uptrend, but has given back some gains in 2010. The first piece of support comes from the 17-week exponential at 354, and chart support comes in at 340. Weekly momentum has put in a couple of bearish divergences after cycling into overbought territory, which is a strong warning that the upside may be limited, or that a pullback or correction may occur, by our analysis. We remain neutral with a bearish bias on Information Technology from a technical perspective.
Following the sector strongly outpacing the S&P 500 since early March, we think overbought technical readings reduce the likelihood of continued outperformance.
Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends marketweighting the S&P 500 Materials sector. Year to date through January 22,, this sector, which represented 3.5% of the S&P 500 Index, was down 4.5%, compared to a 2.1% decline for the 500. In 2009, the sector index advanced 45.2%, versus a 23.5% rise for the 500. There are 13 sub-industry indices in this sector, with Diversified Chemicals being the largest at 23.2% of the sector's market value.
S&P analysts have a neutral fundamental outlook for the sector. In a number of sub-industries, including Specialty Chemicals, Diversified Chemicals, and Paper Products, we think significant cost reductions will yield margin improvements in 2010. In addition, we expect chemical manufacturers to benefit from rising demand and industry production, off recession lows in 2009. We expect the sector's EPS to jump 74% in 2010, versus an estimated 36% rise for the S&P 500. However, the sector trades at a 23% premium to its long-term median valuation, appropriately reflecting the aforementioned positives, in our view. Its P/E on estimated 2010 EPS of 16.3X is above the 14.3X for the overall market. The sector's P/E to projected five-year EPS growth rate of 1.7X is higher than the market's PEG of 1.5X. This sector's S&P STARS average of 3.2 (out of 5.0) is below the broader market's average of 3.8.
The S&P Materials Index has been one of the strongest sectors since the bear market bottom, but has quickly approached a zone of key resistance up in the 215 to 235 region. This is a concentrated zone of chart resistance from 2007 and 2008. The U.S. Dollar Index has rebounded sharply to new recovery highs after the recent pullback, so it appears to us that there will be additional dollar strength in the coming weeks and months. Relative strength versus the S&P 500 recently broke to new recovery highs, but we believe that breakout is in jeopardy. The RS line has been leading the 500 since December 2008, and we think some underperformance is due as many Materials stocks are stretched to the upside, in our view. The 14-week RSI is working on its first bearish divergence, which is another major concern. We have lowered our technical outlook on Materials to neutral, from bullish.
We recommend marketweighting the Materials sector as we believe lingering global growth fears and a firmer U.S. dollar are likely to limit near-term commodity price appreciation, inhibiting short-term Materials sector outperformance.
Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends underweighting the S&P 500 Telecommunication Services sector. Year to date through January 22,, this sector index, which represented 3.0% of the S&P 500 Index, was down 8.3%, compared to a 2.1% decrease for the S&P 500. In 2009, this sector index rose 2.6%, versus a 23.5% advance for the 500. There are two sub-industry indices in this sector, with Integrated Telecommunication Services being the largest, at 90.1% of the sector's market value.
S&P analysts have a positive fundamental outlook for the sector. We see revenues for most major telcos growing modestly in 2010, and we expect continued expense reductions. We look for benefits from completed or soon-to-be completed M&A deals involving mid-size rural wire-line carriers. In addition, we believe operating and capital spending savings along with broadband growth in 2010 will help support their above-average dividend yield. However, we expect wireline voice operations at all carriers to remain under pressure amid competition. S&P equity analysts forecast 2% EPS growth for the Telecom sector in 2010. The sector trades at a P/E on estimated 2010 earnings of 13.7X, below the 14.3X of the S&P 500, and its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 2.4X is above the market's PEG ratio of 1.5X. Lastly, this sector's marketweighted STARS average of 4.3 (out of 5.0) is well above the S&P 500 Index average of 3.8.
The S&P GICS Telecom Index, after rallying all the way up to the top of its base in the 115 to 118 area, has pulled back quickly to trendline support off the lows since March. Telecom remains the only sector that has not completed a bullish reversal formation, and since March 2009, has been a real laggard versus the broad market. Encouragingly, relative strength versus the 500 appears to be bottoming, and if the overall market continues to pull back, we believe there could be some outperformance from this defensive sector. Weekly price momentum has pulled back sharply and is currently sitting in neutral territory. We are neutral with a bearish bias on Telecom from a technical perspective.
In conclusion, we recommend underweighting the Telecom sector, as we believe a relatively muted profit outlook will result in underperformance as investors focus on more economically sensitive sectors.
Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends underweighting the S&P 500 Utilities sector. Year to date through January 22, the S&P Utilities Index, which represented 3.6% of the S&P 500 Index, fell 3.9%, versus a 2.1% decrease for the S&P 500. In 2009, this sector index was up 6.8%, versus a 23.5% increase for the 500. There are four sub-industry indices in this sector, with Electric Utilities being the largest, at 54.3% of the sector's market value.
S&P has a neutral fundamental outlook for the S&P 500 Utilities sector. We think a number of utility stocks are attractive for their above-average dividend yields and the benefits we see arising from their regulated and non-regulated operations. We believe the performance of these stocks will largely reflect the anticipated degree of recovery in their service territory economies and housing markets, but we expect the sector to lag the initial recovery in the broader market. We think electric utility revenues and gas utility gross margins will increase from 2009's depressed levels. The sector trades at a P/E on estimated 2010 earnings of 11.9X, below the 14.3X we see for the S&P 500. Its P/E-to-projected five-year EPS growth rate (PEG) ratio of 2.4X is well above the market's PEG ratio of 1.5X. This sector's S&P STARS average of 3.5 (out of 5.0) is below the 3.8 average for the S&P 500.
The S&P GICS Utilities Index is consolidating after recently completing a bullish reversal pattern by taking out the top of the large base in the 155 region. Along with chart support at 155, the 17-week exponential average also lies at this level. The sector appears to be bottoming on a relative basis, as it has been tracking the market since the beginning of November. Also on a relative basis, the defensive characteristics could be a plus during overall market weakness, in our view. There is very little chart resistance immediately overhead, so we think prices have room to run once the pullback in the overall market is over. Weekly momentum remains in an uptrend and has a fair amount of room before it cycles into overbought territory. We have raised our technical outlook on the Utilities sector to neutral with a bullish bias, from neutral.
In summary, we believe an ongoing domestic economic recovery will continue to fuel cyclical outperformance at the expense of this counter-cyclical sector.
Current Sector Weighting & Performance Percentages
 | How to use this chart Roll over chart for more sector details or click a name to go to the respective sector page. How to read this chart The size of the pipe wedge represents each sector's relative current percentage of the U.S. Equity market. Colors indicate performance loss or gain for the time period selected. The brightest green pertains to the sector with the highest gain and the brightest red refers to the sector with biggest loss. |
Current Sector Weighting Performance & Percentages*
Click a sector for a snapshot| Sector | Actual Market Weighting | 1 Day Performance | 1 Week Performance | 1 Month Performance | 3 Month Performance | YTD Performance | 1 Year Performance |
|---|---|---|---|---|---|---|---|
| Utilities | 3.81% | -1.11% | -3.92% | -7.11% | -0.93% | -9.54% | -4.66% |
| Telecommunication Services | 2.74% | -0.77% | -2.22% | -8.61% | -1.92% | -11.82% | -2.50% |
| Energy | 11.16% | -0.91% | -4.26% | -10.37% | -6.82% | -6.69% | 2.55% |
| Health Care | 12.54% | -0.38% | -2.50% | -3.55% | 5.27% | -2.79% | 11.79% |
| Consumer Staples | 10.24% | -0.32% | -1.98% | -2.63% | -1.10% | -3.54% | 15.13% |
| Industrials | 11.09% | -1.11% | -3.21% | -7.76% | 0.51% | -4.26% | 27.44% |
| Materials | 3.97% | -1.54% | -4.23% | -14.03% | -2.47% | -10.46% | 32.04% |
| Information Technology | 19.11% | -0.53% | -1.27% | -9.22% | -1.37% | -9.28% | 38.02% |
| Financials | 15.28% | -2.21% | -5.35% | -10.48% | -4.60% | -5.60% | 39.74% |
| Consumer Discretionary | 10.08% | -0.41% | -2.15% | -5.80% | 2.11% | -4.93% | 42.08% |
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Current Actual market Weighting
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Sector Commentary from Standard & Poor's
02/07/2010
S&P recommends marketweighting the S&P 500 Consumer Discretionary sector. Year to date through January 22, the sector index, which represented 9.6% of the S&P 500 Index, was down 2.5% compared with a 2.1% drop for the S&P 500. In 2009, this sector index rose 38.8% versus a 23.5% advance for the 500. There are 33 sub-industry indices in this sector, with Movies & Entertainment being the largest, at 14.6% of the sector's market value.
S&P analysts' fundamental outlook on the Consumer Discretionary sector is neutral. S&P Economics forecasts U.S. real GDP will rebound to 2.4% growth in 2010 from an estimated 2.5% decline in 2009. In addition, S&P Economics forecasts consumer spending will increase 1.7% in 2010 after a projected decline of 0.6% in 2009. Sector earnings are expected to rise 43% in 2010, following an estimated 89% increase in 2009. In light of its faster growth rate, the sector's P/E of 16.0X on estimated 2010 EPS is above the S&P 500's projected P/E of 14.3X. Its P/E to projected five-year EPS growth rate of 1.3X is below the broader market's average of 1.5X. The sector's marketweighted STARS average of 3.2 (out of 5.0) is below the average of 3.8 for the S&P 500.
The S&P GICS Consumer Discretionary Index has struggled in recent weeks as it is situated in a thick layer of chart resistance that runs from 230 up to 265. This chart resistance is from the pivot lows in January and March 2008, and will be tough to break through without a pullback or correction first, in our view. Prices have just started to break down through major trendline support off the March lows, a warning sign, in our opinion. On the downside, key chart support is in the 230 zone, while the rising 17-week exponential average sits at 228, and is many times support during bull market pullbacks. We believe a break of the 230 region will open the door for a move down to the 210 area where chart support as well as the 43-week exponential sits. We have lowered our technical opinion on the Consumer Discretionary sector to neutral with a bearish bias, from neutral.
In summary, we recommend a marketweight exposure to the Consumer Discretionary sector. Although this highly cyclical sector should benefit from a gradual economic recovery, we believe lingering uncertainty regarding the slope of the recovery trajectory will preclude further outperformance.