SECTOR WATCH: Winners and Losers

Despite a big increase in volatility during the third quarter, the major averages held up well, thanks to mixed trading from the various sectors of the market. Financials, transportation, and housing stocks have been notably weak. However, other groups, like many of the commodity-related stocks and some areas of technology, continue to perform relatively well.

Gold mining stocks have been the market’s best performing group during the third quarter. With eight trading sessions left until the end of the quarter, the PHLX Gold and Silver Mining () is up more than 20%. The gains in the sector follow losses during the first and second quarter. Yet, during the past three months, gold mining stocks have been hot amid a big rally in the precious metal. Gold was recently trading at a 25-year high of more than $732 an ounce, up from $652 an ounce at the end of the second quarter.

Table 1 shows the other sector winners over the past few months. Anything related to energy is doing well. Crude is trading at all-time highs of more than $82.00 a barrel, up from less than $70.00 in late June. Shares of the oil drillers are following crude higher. The PHLX Oil Service Sector Index () is up for a third consecutive quarter. After a 22.8% rally in the second, it is up nearly 10% in the third.  

Some areas of technology are also showing relative strength. The PHLX Street.com is up for a second consecutive quarter. After a 10% advance in the three months ended June 30, the DOT is up another 4.7%. The MS Biotech Index () is up a similar amount. Meanwhile, the Select Sector Technology Fund (), which is an exchange-traded fund that holds all of the tech names within the S&P 500, is up 3% on the quarter and 13.4% so far this year.

The Select Sector Industrials () and the Select Sector Basic Materials () funds are also higher on the quarter. Utilities are up modestly. Retailers are in positive territory for the quarter. The Retail HOLDRS () surged 5% in one day after the Federal Reserve announced an interest rate cut Tuesday afternoon.  The move pushed the basket of retailers into positive territory for the quarter.

Table 1: 3^rd Quarter Winners

Housing stocks continue to suffer losses. The PHLX Housing Sector Index (), which fell 7.4% in the first quarter and 3.6% in the second, is down another 18.7% during the third. The sector continues to suffer losses amid the ongoing slump in the housing market along with fears about future buying demand due to problems in the credit markets.

Airline stocks are the market’s second worst performers. The PHLX Airline Index () is down for the third consecutive quarter. The index is off 7.8% on concerns about the rising cost of energy and jet fuel. Meanwhile, the Dow Jones Transportation Average (), which also includes airfreight, trucking and railroad companies, is down 3.3% during the third quarter. However, the transportation average is up 8.2% on the year.

Anything financial related has also lost ground during the third quarter. Worries about investment banks and their exposure to asset backed securities that sometimes hold shaky subprime loans is weighing on shares of the major brokers. The AMEX Broker/Dealer Index () is down 6.6% for the quarter. Fears about the credit markets helped the PHLX Bank Sector Index () suffer its third consecutive quarterly loss. While the BKX is down 2.2% since June 30, the Select Sector Financials () is down 3.5%. Semiconductors and pharmaceutical stocks are also under water for the third quarter.

Table 2: Third Quarter Losers

Yet, despite the losses in some of the key sectors of the market, the major averages have remained surprisingly resilient. The Dow Jones Industrial Average () is up 330 points or 2.5%, the S&P 500 () has added 16 points or roughly 1%, and the NASDAQ () is up nearly 50 points or 1.9% during the third quarter. All of the major averages are now in positive territory for 2007.    

 
Frederic Ruffy
Senior Writer & Index Strategist
Optionetics.com ~ Your Options Education Site
Visit Fred Ruffy’s Forum