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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
11/01/2009
S&P recommends marketweighting the S&P 500 Consumer Staples sector. Year to date through October 23, this sector, which represented 11.6% of the S&P 500 Index, was up 8.9% compared with a 19.5% rise for the S&P 500. In 2008, the sector index fell 17.7% versus a 38.5% decrease for the 500. There are 12 sub-industry indices in this sector, with Household Products being the largest, at 21.9% 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. In addition, 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 continued U.S. dollar weakness and the inelasticity of demand for this defensive sector's products. The S&P 500 Consumer Staples sector trades at 13.8X 2010 estimated EPS, a discount to the projected P/E of 14.6X 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 4.0 (out of 5.0) is above the average of 3.7 for the S&P 500.
The S&P Consumer Staples Index has rallied right up to a very large layer of chart resistance in the 274 area. This resistance is made up of three pivot lows from August 2007, and January and June 2008. We think the sector could start to struggle from a price basis and we believe there could be a long period of consolidation. While the overall price structure still appears bullish to us, relative strength versus the S&P 500 remains in a downtrend that started in March. The RS line recently dropped to its lowest level since September 2008, a bearish sign, in our view. From a momentum standpoint, the 14-week RSI has cycled into overbought territory, while the 14-day RSI is extremely overbought. This, to us, suggests that prices could consolidate or pull back over the intermediate term. Technically, we are neutral with a bearish bias on Staples.
In summary, we recommend marketweighting the S&P 500 Consumer Staples sector. This reflects our view that while the sector's sales remain less sensitive to recessionary forces than many others, margins are nevertheless being negatively impacted by consumers trading down.
Sector Commentary from Standard & Poor's
11/01/2009
S&P recommends overweighting the S&P 500 Energy sector. Year to date through October 23, the S&P Energy Index, which represented 12.4% of the S&P 500 Index, was up 14.3%, compared to a 19.5% increase for the S&P 500. In 2008, this sector index fell 35.9%, versus a 38.5% decrease for the 500. There are seven sub-industry indices in this sector, with Integrated Oil & Gas by far the largest at 59.7% of the sector's market value.
S&P Equity analysts have a positive fundamental outlook for the Energy sector. This reflects a positive 12-month forward fundamental outlook on the Integrated Oil & Gas sub-industry, which dominates the sector's market cap. In addition, S&P analysts forecast WTI crude oil will average $71.82/bbl. in 2010, rising to $77.38/bbl. in 2011. We believe the recent sharp decline in upstream capital spending should lead to longer-term supply constraints that we think will boost oil prices as demand gradually recovers next year. S&P analysts forecast that the sector's EPS will decline 67% in 2009, but then rebound 88% in 2010 on favorable comps and higher oil prices. The sector trades at a multiple of 13.9X estimated 2010 earnings, below the projected 14.6X P/E of the S&P 500. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 2.4X is 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 3.7.
The S&P GICS Energy Index has finally completed a bullish, inverse head-and-shoulders reversal pattern as it was able to break strongly above tough chart resistance at 420. This break above 420 turns the intermediate- to long-term trend back to bullish from neutral. In addition, the 17-week exponential average closed above the 43-week average, and this moving average crossover buy signal confirms to us that the intermediate- to longer-term trend has turned bullish. Relative strength versus the 500 is still in an intermediate-term downtrend, but has rebounded sharply in October and overtaken its 100-week exponential moving average. We have raised our technical opinion on the Energy sector to neutral with a bullish bias, from neutral.
In all, we recommend overweighting the Energy sector as we think the sector's earnings will rebound sharply in 2010 as oil prices benefit from recent chronic underinvestment in upstream capacity infrastructure, which risks crimping supply at a time of gradually recovering global demand.
Sector Commentary from Standard & Poor's
11/01/2009
S&P recommends marketweighting the S&P 500 Financials sector. Year to date through October 23, the S&P Financials Index, which represented 15.1% of the S&P 500 Index, advanced 20.3%, versus a 19.5% rise for the S&P 500 Index. In 2008, this sector index fell 56.9%, versus a 38.5% decline for the 500. There are 20 sub-industry indices in the sector, with Other Diversified Financial Services being the largest at 26.2% of the sector's market value.
Fundamentally, although S&P analysts see continued write-downs throughout 2009, they expect the trend to keep easing. This spring, the government announced the results of "stress tests" on the 19 largest domestic banks. Positively, capital raises were not as high as anticipated and banks were able to raise money from the private sector. As a result, we think banks are better prepared to withstand further write-downs. That said, tangible capital levels still remain low, by our analysis. Separately, the FASB recently revised some of its mark-to-market accounting rules. We think net income may improve due to lower impairment charges. In addition, robust mortgage banking income and elevated trading profits should help offset continued high provisions. However, if mortgage rates were to rise, this could curtail revenue and also hinder the housing recovery. This sector's marketweighted S&P STARS average of 3.7 (out of 5.0) is in line with the S&P 500 average of 3.7.
The S&P Financials Index has paused after reaching the 200 area, but we think further gains are in store as there is little chart resistance until the 250 level. Prices have broken above a bearish trendline that had been in place since October 2007, which we believe is another technical indication that the longer-term trend has turned bullish. In addition, the 17-week exponential average has crossed above the 43-week exponential, another confirmation that the longer-term trend is bullish, in our view. The 17-week had been below the 43-week since August 2007 and at the bear market low, the shorter-term average was more than 30% below the longer average. Relative strength versus the S&P 500 remains in an uptrend off the March lows, but has paused over the last couple of months. We are neutral with a bullish bias on Financials from a technical perspective.
As a result of the federal government's efforts to stem investor pessimism, we believe the worst for this sector may be over.
Sector Commentary from Standard & Poor's
11/01/2009
S&P recommends marketweighting the S&P 500 Health Care sector. Year to date through October 23, the S&P Health Care Index, which represented 12.4% of the S&P 500 Index, was up 7.9%, compared to a 19.5% rise for the S&P 500. In 2008, this sector index fell 24.5%, versus a 38.5% decline for the 500. There are 10 sub-industry indices in this sector, with Pharmaceuticals being the largest, at 52.2% of the sector's market value.
S&P Equity analysts have a positive fundamental outlook on the sector based largely on a positive outlook for the Pharmaceuticals sub-industry, the sector's largest. We see improving pharmaceutical sales and earnings trends in 2010, helped by the likelihood of more favorable foreign exchange, firmer pricing, new products and ongoing cost controls. On the regulatory front, we think potential health care reform could be net neutral or modestly positive, with new taxes and price discounts more than offset by new business from extended health insurance coverage for 30 million currently uninsured Americans. However, the sector still faces a major patent cliff in 2011-2013. We favor the shares of firms with well-defined growth prospects and generous dividend yields. The sector's 2010 estimated P/E of 11.2X represents a discount to the broader market's P/E of 14.6X. The Health Care sector is forecast to post 13% EPS growth in 2010. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 1.2X 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 above the average 3.7 for the S&P 500.
The S&P GICS Health Care Index has broken above key trendline resistance drawn off the peaks since January 2008. While we think this opens the door for a move to chart resistance up in the 350 to 360 zone, that is only about 10 to 20 points above recent prices. Once prices reach 350 to 360, we believe there could be an extended price consolidation or pullback as the chart resistance appears heavy to us and represents key pivot lows in 2005, 2006, and 2008. Relative strength versus the S&P 500 is still in a downtrend from a longer-term perspective, and just went to its lowest level since October 2008. We are neutral on Health Care from a technical perspective.
In summary, we recommend marketweighting this sector as we believe an improving fundamental outlook is offset by a neutral technical outlook.
Sector Commentary from Standard & Poor's
11/01/2009
S&P recommends overweighting the S&P 500 Industrials sector. Year to date through October 23, the S&P Industrials Index, which represented 10.2% of the S&P 500 Index, rose 12.6%, compared to a 19.5% increase for the S&P 500. In 2008, this sector index declined 41.5%, versus a 38.5% decrease for the 500. There are 18 sub-industry indices in this sector, with Aerospace & Defense being the largest at 26.6% 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. 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 continued U.S. dollar weakness to boost this global sector's EPS outlook in the second half of the year. The sector's EPS are expected to rise 8% in 2010, according to S&P. The sector trades at 15.4X projected 2010 EPS, versus 14.6X for the broader market. Its P/E to projected five-year EPS growth rate of 1.5X is in line with the broader market's 1.5X. The sector's marketweighted S&P STARS average of 3.5 (out of 5.0) is below the average of 3.7 for the S&P 500.
The S&P Industrials Index remains in a strong uptrend with very little overhead supply above current prices. We recently saw a long-term bullish moving average crossover, as the 17-week exponential average passed above the 43-week average. Since the cross, the shorter average has bullishly risen away from the longer-term average. Because of the chart pattern, and the precipitous decline that occurred during September and October 2008, there is very little chart resistance until the 290/300 zone. The 14-week RSI continues to trace out recovery highs and the weekly momentum trend remains bullish, in our view. Relative strength versus the S&P 500 has broken out of a triangle pattern and has marched to new recovery highs. We are bullish on Industrials from a technical perspective.
We recommend overweighting this sector, as we think the global economy will be stronger next year 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
11/01/2009
S&P Equity Research recommends marketweighting the S&P Information Technology sector. Year to date through October 23, the S&P Information Technology Index, which represented 18.9% of the S&P 500 Index, was up 49.5%, compared to a 19.5% increase for the 500. In 2008, this sector index fell 43.7%, versus a 38.5% drop for the 500. There are 15 sub-industry indices in this sector, with Computer Hardware being the largest at 27.4% of the sector's market value.
S&P equity analysts have a neutral fundamental outlook on the IT sector. Enterprises continue to spend on technology as budgets are relatively lean and improving productivity remains a high priority in challenging times. In addition, increasing pent-up demand among both consumers and enterprises has created the need for IT replenishment, in our view. Nonetheless, we think the strength of any global economic recovery is an ongoing concern. The sector index is projected to post a 30% increase in 2010 operating EPS, versus a 34% advance seen for the S&P 500. The sector trades at a P/E on estimated 2010 EPS of 16.6X, versus 14.6X for the S&P 500. Its P/E to projected five-year EPS growth rate of 1.3X is below the broader market's PEG of 1.5X. This sector's marketweighted S&P STARS average of 3.6 (out of 5.0) is just below the average of 3.7 for the S&P 500.
The S&P GICS Information Technology Index continues its strong advance; however, prices have run up to an area of strong overhead supply that starts at 340 and runs all the way up to the 400 level. While the sector could continue to push higher, we think the slope of the advance will flatten as prices face this increased supply of stock. We believe there is also the possibility of a pullback or lengthy consolidation at any time. The layer of heavy resistance is from the key pivot lows in 2007 and twice in 2008 off of that 340 level. If prices pull back, there is plenty of technical support in the 300 to 320 zone. Relative performance versus the S&P 500 has fallen a bit since mid-July, but remains in an intermediate-term uptrend. Weekly momentum is overbought, and may be tracing out a bearish divergence. This also suggests to us that there could be a pause in the rally. We remain neutral on Technology from a technical perspective.
After strongly outpacing the S&P 500 since early March, we think increased valuations and overbought technical readings reduce the likelihood of continued outperformance.
Sector Commentary from Standard & Poor's
11/01/2009
S&P recommends overweighting the S&P 500 Materials sector. Year to date through October 23, this sector, which represented 3.5% of the S&P 500 Index, was up 38.4%, compared to a 19.5% increase for the 500. In 2008, the sector index declined 47.0%, versus a 38.5% fall for the 500. There are 13 sub-industry indices in this sector, with Diversified Chemicals being the largest at 23.0% of the sector's market value.
S&P analysts have a neutral fundamental outlook for the sector. Our fundamental outlook for the Diversified Chemicals sub-industry is neutral; although the manufacturing sector showed sequential improvement in the third quarter, the construction and automobile market slowdowns continue to hinder demand, in our view. We expect the sector's EPS to jump 94% in 2010, versus an estimated 34% rise for the 500. The sector trades at a P/E on estimated 2010 EPS of 17.9X, above the 14.6X for the overall market. The sector's P/E to projected five-year EPS growth rate of 2.2X is higher than the market's PEG of 1.5X. This sector's S&P STARS average of 3.1 (out of 5.0) is below the broader market's average of 3.7.
The S&P Materials Index remains in a strong uptrend and prices are once again widening the distance between key moving averages, a sign of strength, in our view. The bullish part of the chart, by our analysis, is that there is very little resistance between current levels and the 230 to 240 region. The U.S. dollar, one of the major influences on commodity prices, remains in a short-, intermediate-, and long-term bear market, which we believe is supporting the Materials sector. The sector has retraced about 50% of the bear market and the next Fibonacci retracement of 61.8% targets the 220 as potential resistance. Relative strength versus the S&P 500 remains in an uptrend and not far from recovery highs. The 14-week RSI has pulled back but remains in an uptrend off the October lows. Weekly momentum is not yet overbought, suggesting to us additional upside is possible. We remain bullish on Materials from a technical perspective.
We recommend overweighting the Materials sector based on our view of a gradually recovering global economy, increasing raw materials demand and the likelihood of further U.S. dollar weakness in the fourth quarter.
Sector Commentary from Standard & Poor's
11/01/2009
S&P recommends underweighting the S&P 500 Telecommunication Services sector. Year to date through October 23, this sector index, which represented 3.0% of the S&P 500 Index, was down 7.7%, compared to a 19.5% increase for the S&P 500. In 2008, this sector index fell 33.6%, versus a 38.5% decline for the 500. There are two sub-industry indices in this sector, with Integrated Telecommunication Services being the largest, at 90.7% of the sector's market value.
S&P analysts have a positive fundamental outlook for the sector, based on a positive outlook for the Integrated Telecommunication Services sub-industry, which makes up the vast majority of the sector's market capitalization. While we expect major telcos to face challenges as the economy slows, we see the carriers generating free cash flow from broadband growth and cost savings, supporting dividends and share repurchases. S&P equity analysts forecast 2% EPS growth for the Telecom sector for 2010. The sector trades at a P/E on estimated 2010 earnings of 12.8X, below the 14.6X of the S&P 500, and its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 2.3X is above the market's PEG ratio of 1.5X. Lastly, this sector's marketweighted STARS average of 4.6 (out of 5.0) is above the S&P 500 Index average of 3.7.
The S&P GICS Telecom Index continues to underperform the overall market as it works on a base that has been in place since October. Prices are still below the top of the base up near the 115 to 118 zone, so, in our view, it will take some more time for the sector to complete a bullish reversal formation. Prices are back below both the 17-week and 43-week exponential averages and have remained below the 43-week average since December 2007. Both averages are basically flat, and it will take a push higher in prices to get a moving average crossover buy signal, in our view. Relative strength versus the S&P 500 remains in a downtrend after peaking in early March, and the RS line is at its weakest point since January 2006. Weekly price momentum has only recovered to neutral territory, much weaker than many other sectors. Our technical view on Telecom remains bearish.
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
11/01/2009
S&P recommends underweighting the S&P 500 Utilities sector. Year to date through October 23, the S&P Utilities Index, which represented 3.7% of the S&P 500 Index, rose 1.1%, versus a 19.5% increase for the S&P 500. In 2008, this sector index was down 31.5%, versus a 38.5% decrease for the 500. There are four sub-industry indices in this sector, with Electric Utilities being the largest, at 55.5% of the sector's market value.
S&P has a neutral fundamental outlook for the S&P 500 Utilities sector, reflecting our neutral view on several of the sub-industries, including Electric Utilities, which represents over half of the sector. While earnings in 2009 have been restricted by the weak economy, some of the mainly electric distribution utilities have benefited from rate increases and lower fuel costs. Utilities with major wholesale power operations, however, have seen expired power contracts replaced with higher-margin contracts, but this has been offset by a decrease in demand. The sector trades at a P/E on estimated 2010 earnings of 11.7X, below the 14.6X we see for the S&P 500. Its P/E-to-projected five-year EPS growth rate (PEG) ratio of 1.9X is above the market's PEG ratio of 1.5X. This sector's S&P STARS average of 3.7 (out of 5.0) in line with the 3.7 average for the S&P 500.
The S&P GICS Utilities Index has rallied right up to the top of a very large base that started in October, and a breakout above the 155 level would finally turn the longer-term trend back to bullish from neutral, in our view. If the breakout occurs, there is very little chart resistance immediately overhead, so we think prices would have a lot of room to run. The 17-week exponential moving average is very close to breaking above the 43-week exponential average. Bearishly, relative strength versus the S&P 500 is still in a downtrend. We have raised our technical opinion on Utilities to neutral with a bearish bias, from bearish.
In summary, we believe an ongoing domestic economic recovery will continue to fuel cyclical outperformance at the expense of this counter-cyclical sector. While the sector's dividend yield is above the broader market's, we think that is unlikely to be enough of a positive offset to prevent continued underperformance.
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 |
|---|---|---|---|---|---|---|---|
| Financials | 15.68% | 2.54% | -2.59% | -2.64% | 2.09% | 17.82% | -4.19% |
| Telecommunication Services | 2.70% | 1.20% | -1.37% | -3.13% | -2.19% | -5.73% | -3.27% |
| Utilities | 3.87% | 1.68% | -0.08% | 0.06% | 1.19% | 0.98% | 0.72% |
| Industrials | 10.77% | 2.47% | 1.66% | 2.15% | 8.83% | 14.09% | 4.06% |
| Consumer Staples | 10.67% | 0.58% | -0.36% | 2.67% | 7.32% | 10.25% | 7.17% |
| Energy | 11.33% | 1.61% | -0.53% | 7.71% | 10.51% | 14.07% | 9.05% |
| Health Care | 12.94% | 1.61% | 1.83% | 2.42% | 4.76% | 9.71% | 9.27% |
| Materials | 3.82% | 2.42% | 0.67% | 1.58% | 1.61% | 36.55% | 21.10% |
| Consumer Discretionary | 9.86% | 2.58% | 0.84% | 3.00% | 8.09% | 31.18% | 27.14% |
| Information Technology | 18.35% | 2.18% | 0.51% | 5.11% | 9.18% | 49.81% | 37.49% |
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One Day Change
Current Actual market Weighting
Top Performing Industries1 day change
Sector Commentary from Standard & Poor's
11/01/2009
S&P recommends marketweighting the S&P 500 Consumer Discretionary sector. Year to date through October 23, the sector index, which represented 9.2% of the S&P 500 Index, was up 31.1% compared with a 19.5% rise for the S&P 500. In 2008, this sector index fell 34.7% versus a 38.5% decline for the 500. There are 33 sub-industry indices in this sector, with Movies & Entertainment being the largest, at 15.4% 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 1.8% growth in 2010 from an estimated 2.7% decline in 2009. In addition, S&P Economics forecasts consumer spending will increase 1.2% in 2010 from a projected decline of 0.7% in 2009. Sector earnings are expected to rise 58% in 2010, following a projected 65% increase in 2009. The sector's P/E of 16.2X on estimated 2010 EPS is above the S&P 500's projected P/E of 14.6X. Its P/E to projected five-year EPS growth rate of 1.5X is in line with the broader market's average of 1.5X. The sector's marketweighted STARS average of 3.1 (out of 5.0) is below the average of 3.7 for the S&P 500.
The S&P GICS Consumer Discretionary Index remains in a strong uptrend, but is quickly approaching what could be formidable chart resistance up in the 230 zone. This chart resistance is from the pivot lows in January and March 2008, and it is thick, in our view. Once prices reach this area, the sector may have to go through an extended period of consolidation, as it attempts to chew through all this overhead supply. If the sector does correct, we believe there are many pieces of technical support in the 200 to 220 zone. The relative strength line versus the S&P 500 continues to drift sideways, but remains in an uptrend off its November lows. Our technical opinion on the Consumer Discretionary sector remains 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.