These Sector ETFs Could Lead the Market Higher

With U.S. stocks flirting with all-time highs, tactical investors should be evaluating the sectors and the relevant exchange traded funds that could carry broader benchmarks, such as the S&P 500, over the top. Some market observers believe that includes the financial services and healthcare groups, the second- and third-largest sector weights, respectively, in the S&P 500.

In recent weeks, investors have been flocking to financial services ETFs, including the Financial Select Sector SPDR (NYSEArca: XLF), in anticipation of the Federal Reserve boosting interest rates this month.

Related: 6 Bank ETFs’ Moment in the Sun

Financial services exchange traded funds still hang in the Federal Reserve’s balance, particularly after the May jobs report disappointed. That could mean the Fed again passes on raising interest rates later this month, which would likely weigh on financial services ETFs that have rallying in anticipation of higher rates.

Thanks in large part to struggles by biotechnology stocks, healthcare exchange traded funds of several different varieties have encountered stumbling blocks.


The silver lining is that healthcare has been one of the most beloved sectors during the current bull market, meaning many market observers see the group’s recent pullback as an opportunity to add to or initiate positions in healthcare stocks or ETFs such as the Health Care Select Sector SPDR (NYSEArca: XLV).