The Breakout of the Century By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Only four sectors have been worth owning this century...
- And the strongest is now at a decade low against the market...
- McDonald's (MCD) is a cautious buy after its E. coli crisis...
- Last week's Big Money buys are all outperforming...
- Election chaos could be a sublime buying opportunity...
You can learn a lot from the "/" key... It might be the most powerful symbol on your keyboard.
With it, you can see how any asset you own is performing against any other asset.
Sectors against the market... the market against gold... gold against bitcoin... and whatever else you can imagine.
It's important to know if the assets you hold are outperforming other major assets. If they're not, your wealth journey is lagging behind.
I just went through and looked at how each of the SPDR Sector ETFs hold up against the SPDR S&P 500 ETF (SPY) since the turn of the century.
These ETFs cover every imaginable equity sector in the market – tech, energy, financials, healthcare, real estate, and a ton more.
How many sector ETFs would you guess have outperformed the market since inception?
If your guess was "not many," then you'd be right. You just might not know how right you are... or how dramatic the performance gap is.
Take a look: 
You can see each sector's returns on the right hand side of the chart, along with SPY as a thick, dark blue line. (We're excluding XLRE and XLC, which launched only in the last 10 years and thus aren't a good comparison.)
Since 2000, only four sectors have outperformed SPY. Those four, in order of performance, are Consumer Discretionary (XLY), Industrials (XLI), Health Care (XLV), and Technology (XLK).
Every other ETF has lagged the market, some severely. The bottom four, by comparison, are Financials (XLF), Utilities (XLU), Energy (XLE) and Consumer Staples (XLP). The worst, XLF, has returned barely half of what SPY put up.
The takeaway is simple. This century has thus far rewarded investors bullish on consumers, industry, tech, and health care... setting aside the roughly 10-year period early on when energy stocks were king.
But let's dive deeper. What can we glean about these outperformers (or underperformers) today?
Take a closer look at the consumer discretionary sector...
Despite being the single best long-term market outperformer, not only has XLY failed to make a new high since 2021 (though it is close)... it's underperforming the market at a rate we haven't seen since 2014: 
Whether this is a buy or a sell really depends on your level of optimism for the American consumer. XLY's best years were during the 2010s, when the post-Great Financial Crisis, easy-money economy proved to exceptional for these types of stocks.
After all, XLY is a grab-bag where, along with retailers like Home Depot (HD) and TJX Companies (TJX), you'll also find techy names like Amazon (AMZN), Tesla (TSLA), and Booking Holdings (BKNG) as well as major food chains like Starbucks (SBUX), Chipotle (CMG), and McDonald's (MCD).
If we do see continued rate cuts and those prove to be a boon to the American consumer, XLY could start to outperform the broad market yet again. It's also in spitting distance of a new high... and new highs are exactly what you want to see in an outperforming sector.
Plus, look at this ratio chart below. Like we observed in Energy stocks back in May, the chart of XLY/SPY is showing a long-term bullish falling wedge pattern. When these patterns break to the upside, it's a strong sign of a trend reversal: 
Right now, buying Discretionary stocks is a bit of a speculation. But the chart is worth watching.
The sector has proven to be the strongest area of the market thus far this century. That breakout, should we see it, could prove one of the most important in a long time. McDonald's is on rare discount right now... News broke this week that McDonald's identified an E. coli outbreak at some of its mountain-state restaurants. (Disclosure, I own shares of MCD.)
At writing, it looks like the outbreak has affected at least 75 people, including 22 who were hospitalized and one that died after eating a Quarter Pounder at their local restaurant.
Health safety issues like these are obviously a bad look. They're so bad, and make such an impact, that successful restaurants take great measures to ensure they don't happen.
McDonald's was lucky to quickly source the issue to the onions that go on those Quarter Pounder sandwiches, and it's since pulled the item from 20% of its stores and identified the distributor. That makes a big difference, as it's not a case of how McDonald's employees handled the food but rather a tragic error in the supply chain.
Just look at MCD's stock price this week: 
Anyone who's been investing a long time probably saw this chart and immediately thought of another similar – but far more severe – drop in Chipotle stock in 2015.
Back then, the stock fell by more than two-thirds over a period of more than three years as CMG had an E. coli outbreak during a time of rapid growth for the company.
The difference between MCD and CMG is twofold: - CMG struggled for years to identify what was causing the issue, where, and why it kept happening. Ultimately, more than 1,000 people got sick from that incident.
- The market-cap difference between MCD now and CMG then is vast. MCD is worth about $211 billion, and CMG was worth just over $20 billion when it went through this scenario.
It's also worth noting here that, despite the pain of CMG's E. coli issues, it eventually persevered and became one of the best-performing stocks of the last 15 years.
The MCD situation seems more contained than what happened with CMG. And naturally, its size and dominance are going to keep the slide from escalating to the same extent a smaller-cap stock would see.
So, the next question becomes – is it a buy today?
We can qualitatively presume that MCD has the situation under control and that prices are at a nice discount.
But we can also comb through the data and see how MCD tends to behave after big drops like this.
I went back and looked at all the times MCD stock fell by 6% or more over a six-day period, as it's done now. Over the past 30 years, this has happened 66 separate times.
Assuming you held for a 42-day (two-month) period... - MCD stock was higher more than two-thirds of the time, at 66.7%.
- The average trade, counting both wins and losses, resulted in a 1% return over that period.
- When MCD was positive, it rose more than 8%.
- And when it was negative, it fell almost 13%.
MCD may have a bit more to fall, just judging by the neutral reading on its Relative Strength Index (RSI) and general weakness in the S&P 500. But the odds are strong that two months from now, MCD stock will be higher... and potentially a lot higher. Let's check in with the top Big Money buys... We like to kick off each week here in TradeSmith Daily with a look at where some of the market's biggest individual buy volumes are headed. This is possible thanks to Jason Bodner's Quantum Score – a composite of a business's fundamental growth factors and its technical strength. The biggest sign of technical strength, in our view, is the presence of massive, institutional-scale buying volumes. And every week, Jason shares a list of the top-scoring and bottom-scoring stocks with his subscribers. 
This week saw a bit of a shakeup. Arista Networks (ANET), Check Point Software (CHKP), Tradeweb Markets (TW), and Royal Caribbean (RCL) held their top 10 rankings, but we also saw the first Magnificent 7 stock join for the first time in months: Nvidia (NVDA). All of these stocks are outperforming the market this year... and over the last three months.
The bottom of the list saw two new entrants – embattled aircraft maker Boeing (BA) and former 2021 solar darling SolarEdge Technologies (SEDG). You probably don't need me to tell you BA is underperforming, and if you've read the news you probably have an idea why, but SEDG is down an excruciating 82% against the market this year.
If our theme today is about being in the best-performing sectors and markets, Jason's Hotlist is a perfect way to end. It's purposefully designed to raise the cream of the crop to the top – and expose the worst places to put your money... updating every single week. Jason's subscribers will get the freshest list later today, and you can learn how to become one of them right here. To your health and wealth,  Michael Salvatore
Editor, TradeSmith P.S. At TradeSmith, we devote nearly all of our time and resources into helping our subscribers gain an edge other investors won't have, especially if we can play off unique scenarios.
This election season is the perfect example.
Everyone who's aware of the U.S. elections knows to expect a bit of chaos and uncertainty next week. But few know how to actually handle it.
The key is not to panic-sell any long-term holdings even if the market goes risk-off for a moment. Instead, you'll want to use any volatility as an opportunity to get into the stocks best positioned for growth no matter who enters the Oval Office on January 20 or who's in control of Congress.
The Freeport Society knows all about how to find these, similarly to how we do at TradeSmith – with money flows. Their senior analyst Charles Sizemore joined me for a great talk on this very subject the other day; go here to watch if you missed that on Saturday.
And if you'd like to better understand the kinds of stocks you should look for during this post-election volatility hangover, you should join Freeport for their free research webinar tomorrow, Oct. 29 at 7 p.m. Eastern. Get the details and save your spot here, | 
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