Financial, Industrial ETFs Jump as Market Breadth Improves
- Investors are broadening their focus away from Mag 7.
- Financial ETF XLF’s 28% 1-year gain handily beats SPY and VOO.
- Industrial ETF XLI has gained 22% over past year; MAGS is no slouch, gaining 24%.
Move over Magnificent 7. Investors are broadening their view, reaching into mainstays including financials, industrials and utilities.
After several years of top tech stocks like Nvidia Corp. (NVDA) and Microsoft Corp. (MSFT) being responsible for most of the Nasdaq-100’s gains, investors are scooping up old standbys. Market breadth is widening as the S&P 500, as measured by the Vanguard S&P 500 ETF (VOO), hits fresh records.
More S&P 500 stocks are participating in the rally, according to a measure of the number of stocks in the index closing above their 50-day moving average. The number of stocks rising versus those declining is also reaching new highs, according to the Wall Street Journal.
“The market rally is finally broadening beyond big tech, with financials and industrials now helping to fuel the move higher,” said Kevin Simpson, CEO of Capital Wealth Planning in Naples, Florida. “We’re seeing meaningful improvement in market breadth, as more stocks trade above key technical levels and investors search for value outside of the richly valued mega-cap names.”
Just last year, the Mag 7 accounted for half of the S&P 500’s return, while it made up just a third of the index. At the same time, it made up almost three-quarters of the Nasdaq-100’s 2024 return despite representing less than half of that index.
XLF, XLI & XLU On the Move
Financial and industrial exchange-traded funds are gaining, along with the Invesco QQQ Trust (QQQ), which tracks the tech-heavy Nasdaq-100 and recently hit an all-time high.
The $49.3 billion Financial Select Sector SPDR Fund (XLF), whose top holdings are Berkshire Hathaway Inc. (BRK.B) and JPMorgan Chase & Co. (JPM), has gained 28% over the past year.
XLF’s 8.2% gain so far this year beats VOO’s 5.6% gain. Still, many have missed the XLF gains, as $2.2 billion has been pulled from the fund so far this year.
XLF vs. XLI vs. MAGS—Source: FactSet
At the same time, the $21.7 billion Industrial Select Sector SPDR Fund (XLI) has gained 22% over the past year. Again, many of those gains have been missed by investors who have pulled $895.8 million from the fund this year. The $18.9 billion Utilities Select Sector SPDR Fund (XLU) has added 23%.
Still, the $2.4 billion Roundhill Magnificent Seven ETF (MAGS) is holding its own with a 24% gain over the past year.
Only days ago, analysts fretted that market breadth was dangerously narrow and focused on tech again. Bloomberg reported last week that market breadth hadn’t budged since May, potentially setting up the market for a selloff.
“While AI optimism keeps the Magnificent Seven in focus, this healthier, more diversified participation could help sustain the market’s advance through the summer—especially if rate cuts and easing trade tensions play out,” Simpson said.
