ETF Expert

It wasn’t more than a week ago where a headline read, "Worst YTD Ever." And factually speaking… it was true. Out of the ‘08 gate, the stock market had the worst 5 weeks on record.

Yet any investor worth his weight in platinum, gold, wheat or soy… you choose the commodity… understands that arbitrary dates do not portend the death of equities. In fact, opportunity often arises out of our worst fears.

For those who look for silver linings, then, the changing landscape is worthy of inspection. For instance, a few weeks ago, an investor may have had a difficult time finding a segment of the economy that had climbed above a short-term moving average known as the "50-day trendline." Today, there are 5.

What are the 5 areas of relative market strength? Energy, Materials, Transportation, Banking and Retail.

For those who may be keeping score, Energy and Materials had spectacular returns in 2007. The Energy Select Spider (XLE) scored a whopping 35% last year, while the Materials Select Spider (XLB) notched 20%.

The specter of a global recession, however, caused these sectors to struggle immensely in January. If Energy and Materials continue to rebound, though, it could speak volumes about the worldwide demand for resources.

What may come as a bigger surprise is how some of the worst areas — transportation, banks, retail — are now performing better than the broader market. Retail and Banking each posted losses of -28% in 2007, but are now in positive territory for 2008.

In fact, the iShares Dow Jones Transportations Average (IYT), the S&P SPDR Retail Fund (XRT) and the KBW Bank Index Fund (KBE) have all climbed above a 50-day trendline. And they continue defying many doom-n-gloomers prognostications.

Keep in mind that the media continuously explain that transportation costs are too high, that the consumer is tapped out and that the financial system will take years to recover. And yet, these are the very areas that are outperforming the broader market indicators like the Dow and the S&P 500.

Of course, there is another side to the coin; that is, some exceptionally important segments are still mired in uncertainty.

Healthcare (XLV), Technology (XLK), Industrials (XLI), Utilities (XLU) and Staples (XLP) have yet to come out of their bearish funk. Ironically, healthcare, utilities and "consumer must-haves" (i.e. Staples)are supposed to perform well in a recession. So what gives?

Simply put, the areas of relative strength either give a glimpse of global demand (i.e., energy, materials) or bargain-hunting in the wreckage (i.e., retailers, transporters and financial companies). Yet bearish sentiment is strong enough to harm even the so-called "recession-proof" vehicles, not to mention more aggressive categories like tech.

In truth, Fed interest rate action in March as well as Q1 earnings reports in April will give a better indication for what to expect in 2008. Recession, slow growth, no growth… we will survive that. We will just need to see a future that is looking brighter.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.