Market Shock: How Sectors Have Shaped Up During Historic Sell-Off

Key Points

• Last week, stocks plunged due to disappointing job data and recession fears, with the S&P 500 falling 1.84% and the Nasdaq 2.43%.
• U.S. equities experienced a sharp gap down on Monday, driven by extreme sell-offs in Japan's Nikkei 225 and the rapid unwinding of "carry trades," further amplifying market volatility.
• Financial (XLF) and Technology (XLK) sectors were among the hardest hit, with XLF down 6.6% over five days and XLK losing over 8% in the same period.

Over the past week, the stock market experienced a significant downturn, marked by a historic sell-off across multiple sectors and global markets. Here's a detailed look at what transpired and how the key sectors have fared amid the volatility.

Market Turmoil: Recent Sell-off

The stock market faced a significant sell-off last week, primarily due to disappointing job data and rising recession fears. The S&P 500 fell 1.84%, the Nasdaq Composite slid 2.43%, and the Dow Jones Industrial Average dropped 1.51%, hitting a session low with a nearly 1,000-point decline.

The Labor Department's report showed nonfarm payrolls increased by only 114,000 in July, significantly below the expected 185,000, with the unemployment rate rising to 4.3%. Amid concerns that the Federal Reserve's decision to maintain current interest rates might have been a mistake, investors flocked to bonds, pushing the 10-year Treasury yield to its lowest since December.

Mega-cap stocks suffered notable losses: Amazon fell 8% on the week after missing revenue estimates and issuing a weak forecast, Intel dropped 26% on poor guidance and layoffs, and the market's darling NVIDIA decreased by 1.8% on Friday following a 6% decline the previous day.

Monday's Market Gap Down

The situation worsened on Monday as U.S. equities experienced a sharp gap down. Sunday futures were significantly lower after panic ensued in the Japanese market, with extreme sell-offs in the Nikkei 225 (Japan's S&P 500), causing a ripple effect globally. U.S. stocks were particularly impacted by the rapid unwinding of "carry trades."

Sector Performance During Market Volatility

Let's analyze how the popular sector ETFs have shaped up during these recent days of volatility compared to the benchmark.

XLF: Financial Select Sector SPDR Fund

The XLF NYSE: XLF tracks financial services companies, including banks, investment funds, and insurance companies. Last week, the famous financial ETF was down slightly over 3%, making it one of the worst-performing sectors. Yesterday, those losses extended, bringing its five-day performance to negative 6.6%. YTD, however, the sector ETF remains positive at 8.6%.

XLK: Technology Select Sector SPDR Fund

The XLK NYSE: XLK focuses on the technology sector, including companies in software, hardware, and IT services, and is heavily comprised of members of the magnificent seven. The XLK has been one of the hardest hit sectors, with last week's losses totaling 5.34% and extending by an additional 3.33% on Monday. After sharply reversing off its lows on Monday, the XLK closed near its 200-day SMA, which will be a critical trend inflection point in the future. 

XLE: Energy Select Sector SPDR Fund

The XLE NYSE: XLE represents the energy sector, including companies involved in oil, gas, and renewable energy. Like the sectors mentioned above, the XLE's decline of 4.1% last week was greater than the benchmarks' (SPY) weekly loss of 2.1%. Monday's panic and further decline of 2.2% added to its pullback, with the sector ETF now trading below critical support near $88 and flattening 200-day SMA.

XLU: Utilities Select Sector SPDR Fund

The XLU NYSE: XLU tracks utility companies, including electric, water, and gas utilities. Unlike the overall market and the sectors mentioned above, the XLU acted as a haven last week, with the ETF achieving new 52-week highs and closing the week up an impressive 4.1%. However, on Monday, it could not remain uncorrelated to the overall market and experienced a 2.6% decline to trade back near the previous resistance at $72. In the future, it will be essential to see whether that area can be turned into support. 

XLP: Consumer Staples Select Sector SPDR Fund

The XLP NYSE: XLP covers essential consumer goods companies, including food, beverages, and household products. Up almost 1% last week, the consumer staples sector acted true to its nature as a somewhat recessionary-proof sector with a solid defensive nature. However, as various growth and innovation stocks and industries staged impressive rebounds off the lows on Monday, the XLP pulled back, declining almost 2%. The sector ETF remains just 2.5% away from its 52-week high, within a firm uptrend, with $76 as the line in the sand.