Which Sectors Are Best Poised For A Comeback In 2019?

There’s no point in sugar coating it: the market has been garbage the past three months. Thanks in large part to the fourth quarter volatility, only two S&P sectors finished 2018 in the green: utilities (1.7 percent) and health care (3 percent).

On the other hand, three of the remaining eight indices closed the year down more than 10 percent from their 2018-highs, while four find themselves down more than 20 percent from those high water marks.

But it’s not all bad news. The first batch of significant economic data—December’s Employment Situation Summary—came in well above estimates. And just because a market has been hit hard, doesn’t mean it’s not being eyed by traders.  Looking at fund flow data among several leveraged ETFs, we can get a clue as to which sectors short-term traders are most focused on heading into 2019.

Transportation

Among the hardest hit sectors since stocks began their freefall back in October, transportation stocks fell hard on fears of an impending recession. The Direxion Daily Transportation Bull 3X Shares ETF TPOR leveraged ETF (which tracks the Dow Jones Transportation Average) is down more than 50 percent off of its 2018 high. The sector has also been in mixed favor with investors, though it’s fund flow remains in the black over Q4 2018 at around $6.27 million.

Source: ETF.com. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost.  Current performance may be lower or higher than the performance data quoted. For standardized performance, click here

However, while anxiety over slowing growth might have pulled many of the rail stocks back down to earth, Norfolk Southern Corp. NSC and Union Pacific Corporation UNP were trading at about 75-times earnings prior to their fall, both stocks also carried a track record of four quarters of top and bottom line beats.

Additionally, with oil prices expected to remain depressed continuing into 2019, ground and air transports like United Continental Holdings UAL, United Parcel Service, Inc. UPS and Landstar System, Inc. LSTR will at the very least have a lower overhead in the foreseeable future.

Financials

Despite the fact that 2018 posted the most interest rate hikes since before 2008 and the era of quantitative easing, a large swath of bank stocks finished 2018 down between 10-30 percent. Still, enthusiasm in the financial giants remains relatively high. Fund flow in the Direxion Daily Financial Bull 3X Shares ETF FAS is still at about $152 million.

Source: ETF.com: Past performance is not indicative of future results. For standardized performance, click here

Beyond favorable interest rate conditions for the large, legacy financial institutions, the sector also has momentum in Visa Inc. V and Mastercard Inc. MA, two of only a handful of large-cap financial stocks to come out of 2018 in the green.

Gold Miners

Finally, if there is a real crisis brewing for the markets in 2019, that would indicate it might finally be gold’s time to shine. Spot price in the metal has climbed 7.5 percent since October, which, while not staggering, is the steepest climb since late 2017.

The precious metal’s modest momentum over the last three months of 2018 has, humorously enough, prompted a 45 percent uptick in the Direxion Daily Gold Miners Index Bull 3X Shares NUGT.

However, gold has spent the past five years locked under $1,400/oz largely because supply has been so over-saturated. And, despite the gradual price creep, trader interest in the ETF is in the red at about -$249 million.

Source: ETF.com: Past performance is not indicative of future results.   For standardized performance, click here

While you can see inflow tick up slightly in December, traders still don’t quite have the taste for the precious metals as a flight to safety. This, more than anything else, might be the best indicator 2019 has going for it.

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