The past 10 months has been characterized by rotation from dominance by the “Magnificent Seven” mega-cap tech companies to almost everything that had been beaten down prior to these market rotation trends. As documented in these blogs and our weekly market and strategy updates, the period from July 1, 2025 through January 24, 2026 were characterized by relative outperformance by small cap, midcap and value stocks. Now the market has changed character again. However, it has not swung back to technology. Geopolitics and ever-changing macroeconomic forecasts have driven markets more than underlying fundamentals in the past six weeks.
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There has also been a lot of sector and industry rotation. Some of these changes have been caused by valuations, but some of the largest rotations have been attributable to macroeconomic and geopolitical events. We almost hesitate to write this. Typically, strategists and reporters pay far too much attention to geopolitical events. Certainly our ValuEngine models are geared toward individual stock expected risk-return tradeoffs, not these other factors. We generally consider these to be exogenous factors that will create some short-term noise and volatility before the market returns to fundamentals. Another phrase we hate to use is that this time it may well be different, at least for some time to come.
The Executive Branch of the mightiest nation in the world is now following an expansionist agenda that seems designed to attempt to keep the US and its allies safer while making certain that the US has continued access to “rare earth” metals and expanding our ability to control petroleum supply lines. The reliance on continuing to build on the most advanced military capabilities in the world has also pushed prices higher for most stocks in the Aerospace and Defense Industries.
To get a data-driven view of what has been happening, let’s take a look at ETFs focused on GICS (General Industry Classification Standard – overwhelmingly preferred by US institutional investors) sectors and industries. The ETF sponsor that dominates this category is State Street SPDRs. Isolating these ETFs allows us to make an apples-vs. apples comparison between sector and subsector ETFs. Let’s take a look at the top 10 performing ETFs during the past 12 months with more than $1 Billion in assets.
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| Ticker | Name | Asset ($B) | YTD Price Change | 1 Year Returns | 3 Year Returns | 1 Year FF ($ M) | Div. Yld % | Exp. Ratio | VE Rating | |
| 1 | XME | State Street SPDR S&P Metals & Mining ETF | 4.24 | 8.15% | 101.03% | 27.15% | 1281 | 0.4% | 0.35% | 5 |
| 2 | XAR | State Street SPDR S&P Aerospace & Defense ETF | 6.26 | 16.95% | 76.08% | 33.91% | 1487 | 0.3% | 0.35% | 5 |
| 3 | XSD | State Street SPDR S&P Semiconductor ETF | 1.59 | 2.96% | 49.00% | 18.07% | -68 | 0.3% | 0.35% | 4 |
| 4 | XBI | State Street SPDR S&P Biotech ETF | 7.65 | 4.26% | 46.15% | 16.31% | -177 | 0.4% | 0.35% | 3 |
| 5 | GNR | State Street SPDR S&P Global Natural Resources ETF | 4.72 | 17.12% | 41.63% | 11.79% | 809 | 2.4% | 0.40% | NR |
| 6 | XOP | State Street SPDR S&P Oil & Gas Exploration & Production ETF | 3.15 | 28.16% | 35.44% | 9.25% | 496 | 2.0% | 0.35% | 4 |
| 7 | XLE | State Street SPDR Energy ETF | 39.29 | 25.97% | 32.56% | 13.50% | -109 | 2.3% | 0.08% | 4 |
| 8 | XLI | State Street Industrial Select Sector SPDR ETF | 29.65 | 10.20% | 29.08% | 20.46% | 3238 | 1.2% | 0.08% | 4 |
| 9 | XLK | State Street Technology Select Sector SPDR ETF | 86.90 | -2.92% | 28.61% | 26.74% | 1231 | 0.5% | 0.08% | 5 |
| 10 | XLU | State Street Utilities Select Sector SPDR ETF | 24.44 | 9.74% | 24.27% | 15.78% | 3032 | 2.2% | 0.08% | 3 |
Focusing on 1-year returns, we document once more the price explosions in precious metals and the companies that mine them. However, on a year-to-date basis, sectors more directly related to the US-initiated global conflicts have generated even higher gains. Just a week ago, XAR, the State Street SPDR S&P Aerospace & Defense ETF, had been the year-to-date leader among these top 10 ETFs. It has been made clear that government spending on technology for the US War Department (formerly DoD) will increase given commitment to regime-changing agendas. Its 12-month return of more than 76% was second only to Precious Metals ETF, XME. Both continue to get our highest rating of 5 (Strong Buy).
In this quickly changing political world accompanied by high market volatility, returns and leadership changes very quickly. However, two of the ETFs now in the top 10 blew past Metals and Mining to seize the lead for year-to-date performance. These two are XOP, State Street SPDR S&P Oil & Gas Exploration & Production ETF and XLE, State Street SPDR Energy ETF. Both ETFs are rated 4 (Buy).
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Looking inside XLE, Five of its top holdings are rated 4 and one is rated 5 (Strong Buy). This includes the three buy-rated companies that are also in the top ten holdings by market cap weight in XOP. Those stocks are:
- Valero Energy (VLO) – one of the world’s largest independent refiners. It produces transportation fuels and petrochemicals, with a significant portfolio in renewable diesel and ethanol. Its headquarters (HQ) is in San Antonio, TX; it was incorporated in 1980.
- Marathon Corp. (MPC) – a leading, integrated downstream and midstream energy company. It operates a large refining system, markets refined products (principally under the Marathon and ARCO brands), and manages midstream operations via its subsidiary, MPLX LP. HQ: Findlay, OH. Inc. year: 2009 (spinoff).
- Phillips 66 (PSX) – A diversified energy manufacturing and logistics company. It processes, transports, stores, and markets fuels and chemical products. It operates through segments including Midstream, Chemicals, Refining, and Marketing & Specialties. HQ: Houston, TX. Inc. year: 2009 (spinoff)
- Williams Cos. (WMB) – An energy infrastructure company focused on connecting North American hydrocarbon resources to growing natural gas markets. It owns and operates extensive midstream gathering and processing assets, as well as interstate natural gas pipelines. HQ: Oklahoma City, OK. Inc. year: 1949
- EQT Corp. (EQT) – independent natural gas production company focused on the Appalachian Basin. It is recognized as the largest natural gas producer in the United States, focusing on upstream production and, following recent acquisitions, increasingly integrating its midstream assets. HQ: Pittsburgh, PA. Incorporation year: 1888 (as Equitable Gas).
- Exxon Mobil (XOM) – A premier American multinational energy corporation and chemical manufacturer, operating in three core businesses: Upstream (oil/gas exploration), Product Solutions (refining and chemicals), and Low Carbon Solutions. It is one of the world’s largest publicly traded energy providers. HQ: Spring, TX (Houston suburb). Incorporation year: 1882 (Current name: 1999).
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This table provides a brief overview.
| Ticker | Company Name | VE Rating | Last Close | Fair Value | 1-month Forecast | Mis-pricing | Forward P/E | PEG | Div. Yield % |
| VLO | VALERO ENERGY | 5 | 231.05 | 106.36 | 1.08% | 117.23% overvalued | 17.4 | 1.35 | 2.1% |
| MPC | MARATHON PETROL | 4 | 226.74 | 141.21 | 1.06% | 60.57% overvalued | 14.9 | 0.70 | 1.8% |
| PSX | PHILLIPS 66 | 4 | 169.50 | 106.65 | 0.67% | 58.93% overvalued | 13.5 | 0.42 | 3.0% |
| WMB | WILLIAMS COS | 4 | 74.41 | 55.81 | 0.60% | 33.31% overvalued | 30.0 | 2.05 | 2.8% |
| EQT | EQT CORP | 4 | 63.83 | 45.99 | 0.57% | 38.80% overvalued | 15.7 | 1.32 | 1.0% |
| XOM | EXXON MOBIL CRP | 4 | 151.58 | 82.66 | 0.39% | 83.37% overvalued | 20.8 | 3.76 | 2.7% |
The ValuEngine ratings are geared to predict the stocks apt to gain the most in price during the next month and year. It indicates that all of these stocks are in position to gain more than the average stock. We also have a time-tested valuation model. Since the recent price run-ups ran up even more last week, the valuation model is warning that although their predicted rise is significantly more than average stock we cover over the next one-to-12 months, their prices are significantly higher than their fair values. They are overvalued by between 33% and 117%. Overvaluation is a form of risk that does not show up in Beta or price volatility. It indicates that unless earnings increase the fair value to what the market says the price should be, the market price will eventually converge to fair value. In other words, these stocks are opportunities for above average price gains now but have above-average risk for sharp declines eventually.
Obviously, the current war and concerns for the scarcity of oil as a result of blockades is the main reason for the meteoric rise of these two ETFs. Similarly, as the USA became more active militarily in several countries, the Aerospace/Defense ETF (XAR) represents another group that has risen greatly and is predicted to continue to be an above average performer. Five of its top ten stocks are rated at 5 and the other five are rated 4. In fact, all 32 stocks ValuEngine covers in this top-rated sector are rated either 5 or 4. However, 80% of the holdings in this ETF are rated as overvalued. Descriptions of the five 5-rated stocks follow.
- Howmet Aerospace (HWM) – Produces advanced engineered solutions, including investment castings (jet engine components), fastening systems, titanium structural parts, and forged aluminum wheels for the aerospace and transportation industries. HQ City: Pittsburgh, PA. Year of Incorporation: 1888 (as Alcoa Inc.; became Howmet Aerospace after spinning off Arconic Corp in 2020).
- ATI Inc. (ATI) – formerly Allegheny Technologies Incorporated) – A manufacturer of specialty materials and components, including titanium alloys, nickel-based superalloys, and precision forgings for aerospace, defense, energy, and medical markets. HQ City: Dallas, TX. Year of Incorporation: 1996.
- Curtiss-Wright Corporation (CW) – Provides highly engineered products and services, focusing on motion control, surface technologies, and industrial/naval valves for defense, aerospace, and power markets. HQ City: Davidson, NC. Year of Incorporation: 1929.
- GE Aerospace (GE) – A leading provider of jet engines, turboprop engines, and integrated systems for commercial, military, and business aviation, along with maintenance, repair, and overhaul services. HQ City: Evendale, OH. Year of Incorporation: 1892 (originally General Electric; began aviation operations around 1917, became a pure-play aerospace company in April 2024).
- Woodward, Inc. (WWD) – Woodward is an independent designer, manufacturer, and service provider of energy control and optimization solutions for the aerospace and industrial markets. HQ: Fort Collins, CO. Year of Inc.: 1870.
| Ticker | Company Name | VE Rating | Last Close | Fair Value | 1 month Forecast | One Year Forecast | Over- Valuation | Forward P/E Ratio | PEG |
| HWM | HOWMET AEROSPC | 5 | 251.65 | 153.08 | 1.36% | 16.55% | 64.40% | 53.6 | 3.31 |
| ATI | ATI INC | 5 | 157.47 | 81.76 | 1.32% | 16.01% | 92.60% | 36.3 | 1.59 |
| CW | CURTISS WRIGHT | 5 | 692.58 | 342.64 | 1.15% | 13.87% | 102.10% | 46.3 | 4.81 |
| GE | GE AEROSPACE | 5 | 325.15 | 270.64 | 1.14% | 13.73% | 20.10% | 43.0 | 2.97 |
| WWD | WOODWARD INC | 5 | 385.91 | 230.97 | 1.09% | 13.14% | 67.10% | 44.3 | 4.88 |
Note: Since these stocks all have dividend yields of less than 0.6%, yield was not included as a column.
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The same explanations and applications of the ValuEngine ratings and our valuation model apply here. Perhaps even more so than with XLE as all of the stocks in XAR are in a position to gain more than the average stock. The valuation analysis of XAR is similar but not quite as dramatic. These five stocks are overvalued by between 20% and 102%. Again, overvaluation is a form of risk that does not show up in Beta or price volatility. It indicates that unless earnings increase the fair value to what the market says the price should be, the market price will eventually converge to fair value. In other words, these stocks are opportunities for above average price gains now, but have above-average risk for sharp declines eventually unless earnings growth rates accelerate to justify these multiples.vlo
Although both ETFs, both sectors, and all 11 stocks profiled are overvalued, ValuEngine data indicate that the case for investing in XAR and the Aerospace sector in general is stronger fundamentally than the case for XLE. However, the extent to which all of these investment instruments are overvalued makes pursuing gains somewhat precarious. Very watchful eyes are demanded for those looking to still get in now.
Herb Blank
ValuEngine Chief Quantitative Analyst
www.ValuEngine.com (Valuengine, Inc) is a stock valuation and forecasting service founded by Ivy League finance academics. VE utilizes the most advanced quantitative techniques and analysis available to analyze over 4,200 US stocks, 700 US ETFs, and 1,000 Canadian stocks. Fair market valuations, forecast target prices, and buy/hold/sell recommendations are updated DAILY.
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