This Week's Hottest Sector

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Newton's law of inertia doesn't always work in the stock market. For example, the S&P 500 index has lost about 9% of its value since Dec. 31 -- yet homebuilders like Hovnanian (NYSE: HOV) and Beazer Homes (NYSE: BZH) are in the green.

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Stocks in the same sector have a tendency to move in tandem, regardless of overall market conditions. After all, stocks in the same industry generally derive their revenue from similar sources, and they're similarly affected by news, legislation, or events.

Each week, we'll take a look at the hottest sector over the past five days, according to SmartMoney.com's "Sector Tracker," and then cross-reference the individual equities against investor data on Motley Fool CAPS, the Fool's free investing community. Using CAPS, we can get a better feel for what both individual and institutional investors are saying about these stocks.

A surprising sector
This week's top sector is (once again) "airlines." This group includes:

Company	5-Day Price Change	CAPS Rating (out of 5)
AMR (NYSE: AMR)	16.07%	*
Continental Airlines (NYSE: CAL)	11.62%	*
Alaska Air Group (NYSE: ALK)	11.50%	**
US Airways (NYSE: LCC)	11.27%	*
Southwest Airlines (NYSE: LUV)	10.07%	***

Sources: Smartmoney.com's Sector Tracker, Yahoo! Finance, and Motley Fool CAPS as of Feb. 7.

Bulls on parade?
As we saw three weeks ago, CAPS investors' sentiment toward the airline industry as a whole is very bearish. High debt, labor unions, terrorism concerns, and rising fuel prices are major obstacles that constantly hinder airline profitability. Indeed, many investors that have tested these waters before have learned tough lessons.

So what made airlines "hot" again this week? Continued merger talks between Delta and Northwest help, but another recent catalyst has been lower oil prices and higher air traffic volume, particularly on international flights.

While CAPS investors remain bearish on the "traditional" airlines like Delta and US Airways, there are more bulls to be found in regional and value airlines, including player Superunderdoggie, who had this to say about Southwest last week: "This company is exceptionally managed, is innovative, and offers a unique guest experience at a tremendous value."

Add this opinion from a couple of weeks ago by player GeekLaw on Alaska Air, another regional airline:

Energy is high, but the costs now understood for the airlines... [Alaska] dominates its home market and is careful and logical about its expansion... I personally fly this airline frequently and have no complaints. All the airlines in general have allowed service and comfort to decline, but [Alaska] is certainly no worse relatively speaking.

As for me, I'm sticking with my opinion from January -- you should at least heed the warnings from the 83,000-plus-person-strong CAPS investor community and tread carefully with airlines. Unless you're an airline expert, and you can decipher the long-term benefit to common-stock shareholders in companies with generally large amounts of debt -- or if you're just a straight-up gambler at heart -- it's probably best to sit out this airline rally.

Major airlines have been downright dreadful for long-term investors over the years, so if you're looking to generate better long-term returns, there are better options out there right now.

What do you think? Is industry consolidation the answer for the airlines, or is it all for naught? Voice your opinion on Motley Fool CAPS, where more than 83,000 investors are waiting to hear your stock opinions.