E Relative Opportunity With US Sectors

(data from JP Morgan Asset Management)

Earnings are expected to grow in 2019 but to moderate significantly from 2018 (approximately 10% versus 20% in 2018), according to FactSet, which would suggest most likely the upper right quadrant sectors, and possibly the upper left, if the moderation in earnings growth took on any of the flavor of approaching declining earnings.

As you will see in a subsequent chart, the interest rate sensitivity of Real Estate, Utilities and Consumer Staples puts them at a disadvantage during the current Fed rate hiking cycle.

10-Year Beta to the S&P 500                                                                                                                    

(data from JP Morgan Asset Management)

Sectors with a high Beta are considered Cyclical. Those with a low Beta are considered Defensive. And those with Beta near 1.00 have Blended attributes. Morningstar calls this category, “Sensitive” – sensitive to interest rates but not to the extent of being Cyclical.

Health Care, Consumer Staples and Utilities have low Beta and are viewed as Defensive, and Technology, Energy and Communications Services are considered only Sensitive (or Blended).

It is important to know that these are long-term Beta ratings. You can see in the table of Beta for Communications Services on the first page, for example, that the 10-year Beta is 0.94, an almost Defensive rating, but over 1-year has been 1.42, a definitely Cyclical level.

2-Year Interest Rate Sensitivity                                                                                                                   

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Disclaimer: "QVM Invest”, “QVM Research” are service marks of QVM Group LLC. QVM Group LLC is a registered investment advisor.

Important Note: This report is for ...

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