Technology and semiconductor stocks continue to attract attention as advances in AI drive companies like Nvidia. Nasdaq: NVDA As it reaches new heights, investors may find promising opportunities in more traditional, defensive sectors.
Financial Select Sector SPDR ETF NYSE:XLFUtility Select Sector SPDR Fund New York Stock Exchange: XLUIndustrial Select Sector SPDR Fund New York Stock Exchange: XLI Potential upside momentum is building as the third quarter approaches, and while these sectors may not be as exciting as the tech giants, they offer solid diversification and promising setups for traditional investors.
So let’s take a closer look at these three sectors that are building their foundations for a potential major reversal in direction in the third quarter.
Utility ETF XLU: Analyst ratings and price target insights
Utility Select Sector SPDR Fund
(As of 12:38 p.m. ET)
- 52 week range
- $54.77
â–¼
$72.90
- Dividend Yield
- 2.96%
- Assets under management
- $13.83 billion
XLU seeks to mirror the performance of the Utilities Select Sector of the S&P 500 Index, which includes companies in industries such as electric utilities, integrated utilities, independent power producers, energy trading companies and gas utilities.
Year-to-date, XLU has been performing strongly, up 9.5%. After a month-long pullback, down nearly 5% from its 52-week high, the ETF has pulled back to a potential support zone around the rising 50-day SMA. It is currently attempting to record a higher low, signaling a higher breakout potential and continuing the longer timeframe uptrend.
The sector ETF’s holdings have an aggregate rating of Moderate Buy, based on ratings from 310 analysts covering 31 companies that make up 99.7% of the portfolio. The overall target price for the XLU holdings is $73.21, with a range of $61.89 to $84.48, projecting a modest upside of 5.5%.
Industrial Sector Insights: Moderate Buy rating and price target for XLI
Industrial Select Sector SPDR Fund
(As of 12:45 p.m. ET)
- 52 week range
- $96.11
â–¼
$126.39
- Dividend Yield
- 1.30%
- Assets under management
- $18.4 billion
The XLI is intended to reflect the performance of publicly traded stocks in the Industry Select Sector Index, which includes companies in the aerospace and defense industries, industrial conglomerates, machinery, road and rail, air freight and logistics, commercial services and supplies, and professional services.
While XLI is trailing the benchmark and broader market gains of about 15% year to date, it is up about 8% year to date and remains above all major SMAs, maintaining an uptrend on longer timeframes. This extended run near the 52-week high suggests that an upside breakout could lead to a larger upside.
The ETF has a dividend yield of 1.31% and a net expense ratio of 0.09%. XLI’s holdings have an overall rating of Moderate Buy based on 731 analyst ratings covering 50 companies that represent 88.4% of the portfolio. The overall target price for XLI’s holdings is $130.96, with a range of $101.12 to $155.33, implying an upside potential of almost 7%. The top two stocks are General Electric. NYSE:GE Caterpillar NYSE: CAT.
XLF Holdings: Moderate Buy rating and 5% upside forecast
Financial Select Sector SPDR Fund
(As of 12:38 p.m. ET)
- 52 week range
- $31.35
â–¼
$42.49
- Dividend Yield
- 1.68%
- Assets under management
- $38.3 billion
After a relative strength in the first quarter, the financial sector, represented by XLF, underperformed in the second quarter, with the ETF down 1.4% over the period. A few weeks ago, a double top pattern for XLF seemed all but set. However, after a few weeks of consolidation, XLF may be poised for a bull run and possible outperformance in the third quarter. The ETF has reclaimed key simple moving averages (SMAs) such as the 50-day and 20-day. In the penultimate week of the quarter, XLF outperformed the major semiconductor sector, closing up 1.3%.
XLF holdings have an overall rating of Moderate Buy, based on 809 analyst ratings across 50 companies that represent 94.7% of the portfolio. The overall target price for XLF holdings is $43.26, with a range of $35.62 to $49.55. The ETF is expected to see upside of nearly 5%.
Promising setup: Financials, utilities and industrial sectors in Q3
As the third quarter approaches, the financial, utilities and industrial sectors appear to be showing upward momentum, and while tech and semiconductor stocks continue to garner attention, these more traditional sectors offer a promising environment for investors looking for diversification and stability.
The XLF, XLU and XLI ETFs each offer unique opportunities for growth and income, backed by solid fundamentals and favorable technical setups, and investors are encouraged to consider these sectors as part of a balanced portfolio strategy, keeping an eye on performance and key support levels as the quarter progresses.
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