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 iShares US Home Construction ETF (ITB) & iShares US Industrials ETF (IYJ)

Shrugging off the softness that emerged earlier this month, equity markets around the world have resumed their broad-based advance this week, particularly in the last two days. With a quiet confession season suggesting that corporate managements generally expect to be close to or exceed their Q2 targets, investor confidence has continued to improve heading into earnings season which starts this week.

Gains have been very broad-based across sectors over the last week with 29 of the 31 groups SIA Charts tracks posting gains. Leading gainers are dominated by cyclical groups including Automotive, Consumer Durables, Media, Metals and Aerospace. Laggards are dominated by defensive groups including Tobacco, Food & Beverages, Telecommunication Services, Wholesale and Utilities.

The big question now is whether guidance can meet expectations and whether investors who have been buying on anticipation of results are prepared to keep going or if some may be looking to take profits against the news. The first week of results is dominated by national and then regional US banks along with other Financials including brokerages and credit card providers. Results are also due in the coming days from airlines, railroads, US miners, and selected big names including Tesla Motors, Netflix, IBM, Schlumberger, Johnson & Johnson and others.

Renewed indications that we may be nearing the end of the rising interest rate cycle and shifting into pause mode also appear to be helping support stock prices. Following in the footsteps of the Fed, the Reserve Banks of Australia and New Zealand have paused rate hike programs this month, while the Bank of Canada announced a catchup increase as was expected.

A bigger than expected decrease in the US Consumer Price Index announced yesterday could reduce pressure on the Fed to resume rate hikes and potentially enable it to remain on hold for longer. The US 10-year treasury note yield which recently peaked above 4.00% has started to backslide, easing a headwind that equities had been facing.

Inflation and retail sales reports from the US, Canada, and the UK dominate the economic calendar for the coming week, along with US housing reports.

In this edition of Equity Leaders Weekly, we look at recent advances in homebuilders and industrials as examples of investor confidence in the economy and interest in cyclicals.

iShares US Home Construction ETF (ITB)

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