Market Moves

Despite the upbeat news coming from Bank of America Corporation (BAC), which held its earnings call before the market open, the market remained in a tight range and closed mildly lower by the end of the day. The good news is that this tepid response in the opening week of earnings shows that investors may be calming down from September's roller coaster ride. That's a good sign for those looking for indications that stocks will rise. It means that investors aren't looking for excuses to sell out of their positions.

If stocks are set to rise, then the sectors that have been leading the year so far are likely a good bet to be those that lead the way higher in the final months. The chart below compares the sector performance using the price activity of State Street's Select Sector SPDR Funds. These exchange-trade funds (ETFs) each track a sector, namely, Basic Materials (XLB), Energy (XLE), Financials (XLF), Industrials (XLI), Technology (XLK), Staples (XLP), Utilities (XLU), Health Care (XLV), and Discretionary (XLY).

It may not be surprising to see that technology and discretionary stocks are leading the way, but what is more surprising is that they are doing so now. Late in a bull market cycle (after three to five years from the start) sectors like energy and basic materials tend to take the lead, but this isn't happening right now. This suggests that this bullish market may still have several months, or even a year more, left in it.

Chart showing the performance of various sector funds

Growth Stocks Rebounding as Market Calms

Shares of Roku, Inc. (ROKU) had an amazing rise and roller-coaster fall over the summer. Now it appears that the shares may be rebounding in time for an upcoming earnings report.

However, that company isn't the only growth story investors are watching right now. Several other stocks such as NovoCure Limited (NVCR), Generac Holdings Inc. (GNRC), Trex Company, Inc. (TREX), Nvidia Corporation (NVDA), and Haemonetics Corporation (HAE), have shown a recent move higher in anticipation of the market's potential rise through the end of the year.

Image showing a rebound in growth stocks

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Can IBM Outperform the Industrial Sector?

International Business Machines Corporation (IBM) has surprised investors twice by beating expectations in the past two quarters, but that seems to have made very little difference to investors over that time. The stock has shown price action so far this year that is quite similar to State Street's Industrial Select Sector SPDR Fund (XLI).

If the upcoming earnings report beats expectations, this performance pattern may break and lead the industrial sector higher. Some analysts believe that's a pretty wild assumption, however, and have set expectations lower. And yet, that may be the very reason it could happen. 

Chart showing the share price performance of International Business Machines Corporation (IBM)

The Bottom Line

Stocks held in a tight range, closing slightly lower, setting the stage for the indexes to resume their upward climb. If earnings don't disappoint, the stocks in the leading sectors will likely continue to lead the pack. That means stocks in the technology sector and a few other growth stocks. IBM, however, could be a surprise along the way.

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