Investing great Gerald Loeb once said, ““The most important single factor in shaping security markets is public psychology.” Having survived the 1929 market crash, it’s safe to say that Loeb knew a few things about people’s mindset and markets. 


As this year’s first quarter nears completion, we ask a related question to Loeb’s point: How is the stock market’s mood and what does it mean for your clients’ portfolios? Let’s examine this question from several angles, starting with sentiment readings.

The CNN Fear and Greed Index now has a reading of 51, down from a slightly more greedy reading of 56 just a month ago. A reading greater than 50 denotes the market is greedy while a number below 50 indicates it is fearful.

The Fear and Greed Index is helpful because it combines seven key factors—including safe haven demand and market volatility—for its final aggregated output. The final result provides an excellent snapshot of the stock market’s “headspace” at any given moment.

Examining the performance of the market’s mood through the lens of sector exchange-traded funds provides more insight.

ETFs linked to S&P 500 Index sectors with a defensive slant, in this case the Consumer Staples Select Sector SPDR Fund (XLP) and Utilities Select Sector SPDR Fund (XLU), have modest year-to-date declines of 2.5% and 1.5% respectively.

After being among the hardest hit sectors by the global pandemic, the Energy Select Sector SPDR ETF (XLE) has shot ahead 41% this year and is the top performing S&P 500 sector. Energy stocks have been lifted by the steady re-opening of businesses and travel as more people get vaccinated.

Worries about the future of the office market hasn’t weighed on the Real Estate Select Sector SPDR Fund (XLRE). The fund has climbed 3.4% this year after posting a modest decline of 2.1% in 2020. Real estate is also among the highest yielding S&P 500 sectors, and XLRE’s SEC yield hovers near 2.74%.

Social media companies were among the biggest beneficiaries of the pandemic and their stocks continue to perform well. The Communication Services Select Sector SPDR Fund (XLC), which contains Alphabet, Facebook, Twitter, Netflix and others has jumped 9% this year. XLC was introduced in June 2018 after the S&P Indexing Committee re-shuffled companies that were previously in the technology and telecom group and put them into the communication services sector.

Two industry sectors that have lost bullish momentum are healthcare and technology. The Healthcare Select Sector SPDR Fund (XLV) is up 0.2% and the Technology Select Sector SPDR Fund (XLK) has a slight loss of 0.3% this year. Both XLV and XLK are lagging the broader S&P 500’s gain of 4.2%. 

One final sector that has been lifted by inflationary concerns and rebounding commodities prices is the Materials Select Sector SPDR Fund (XLB), which has climbed 7.8% year to date.

What is the performance of industry sector ETFs telling us about the mood of the broader stock market? Despite recent weakness in stock prices, the sentiment toward equities remains bullish. 

Among the 11 industry groups that make up the S&P 500, just three are negative while the rest have positive year-to-date gains. Even so, the three losing sectors—consumer staples, real estate and utilities—have just modest losses. 

As such, sector analysis provides us another valuable window into the stock market’s mood.

Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of “Habits Of The Investing Greats.”