Communications Services Sector Leading the Pack
The US stock market has seen a robust performance year-to-date in 2024, with most equity sectors showing gains. However, two notable exceptions stand out: consumer discretionary and real estate sectors have lagged behind, as reflected in a selection of ETFs through June 10.
Standing out among the leaders is the communications services sector, which boasts a significant 16.8% increase since the beginning of the year. This sector, encompassing companies like Meta, Alphabet, and Netflix, has outpaced the broader market’s 13.1% rise, making it the only sector to surpass the market as a whole in 2024.
Struggling Consumer Discretionary and Real Estate Sectors
The downside performers this year include consumer discretionary shares, which have seen marginal losses, and real estate stocks, down by 4.1%.
Real estate ETFs, such as XLRE, have faced challenges due to the Federal Reserve’s interest rate hikes from early 2022. Despite their historically high dividend yields, REITs have found it difficult to compete with the safer Treasury bonds in the current environment.
Some argue that REITs present an intriguing value proposition, citing XLRE’s 3.51% trailing 12-month yield. Combining this yield with the potential for capital appreciation may paint a more optimistic picture for discerning investors.
However, despite potential upside, technical indicators for XLRE remain uncertain. While the ETF has rebounded from its 2023 low, the price trend remains weak. A breakthrough above the recent peak could signal a more positive outlook, but for now, expectations are confined to a constrained trading range.
Potential Outlook for Real Estate Sector
On a hopeful note, XLRE has demonstrated resilience by holding its support around 32, suggesting a possible end to the downturn in REITs. A rate cut by the Federal Reserve could further aid in the recovery, although such a move does not appear imminent based on Fed funds futures.