Which 4 sectors are beating the S&P 500?

Consumer confidence is up, but the stock market might overheat.

By Minyanville.com May 30, 2013 3:22PM
Dice on stock listings copyright Kate Kunz, CorbisThe U.S. stock market has surged almost 20% since the beginning of the year and continues to lead global stocks higher (Vanguard Total World Stock Index ETF/VT). With 2013 almost already half over, let's quickly examine four industry sectors that are outperforming the S&P 500 ($INX).

A quick snapshot shows that consumer staples (Consumer Staples Select Sector SPDR/XLP) and consumer discretionary (Consumer Discretionary Select SPDR/XLY) sectors are each ahead by over 20% year-to-date and edging out the S&P 500's 17.30% gain.

The mood of consumers is improving, according to the Conference Board Consumer Confidence Index. For May, the index jumped to 76.2 from 69.0 in April, and it is now at a five-year peak.

Rising home prices have also boosted consumer sentiment. The S&P/Case-Shiller Home Price 20-City Composite Index increased by 10.9% in the one-year period ending March 2013. The national composite rose by 10.2% in the last four quarters, and all 20 major cities posted positive year-over-year growth.

The  XLP owns defensive stocks like CVS Caremark (CVS), Procter & Gamble (PG), and Kraft Foods (KRFT). In contrast, XLY owns companies in the auto, hotel, restaurant, and retailing sector like Home Depot (HD) and Walt Disney (DIS).

Health care stocks (Health Care Select Sector SPDR/XLV) and financials (Financial Select Sector SPDR/XLF) are the two other sectors beating the S&P 500's YTD performance.

Within the health care sector, biotech stocks (iShares Nasdaq Biotechnology/IBB) have advanced by a sizzling 33% YTD.

Has the stock market become overheated?

Although household credit remains tight, borrowing money to buy stocks has jumped. For April 2013, NYSE margin debt topped $384.37 billion to beat a previous record of $381.37 billion in July 2007.

Margin interest rates are typically lower than credit cards and unsecured personal loans. Also, there's no set repayment schedule with a margin loan, and the principal can be repaid at the borrower’s convenience. However, a sharp correction in equity prices can cause borrowers to quickly magnify their losses.

S&P 500 earnings growth in Q1 was 3.2%, according to Factset. The energy (Energy Select Sector SPDR/XLE) and materials (Materials Select Sector SPDR/XLB) sectors were the only two sectors to report earnings decreases.

For Q2 2013, earnings growth estimates have dropped from expectations of 4.4% at the beginning of April to 1.4% today.

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