This Week's Hottest Sector

Newton's law of inertia doesn't always work in the stock market. For example, the S&P 500 index has lost about 7% of its value since Dec. 31, yet steel companies like U.S. Steel (NYSE: X) and Nucor (NYSE: NUE) are firmly in the black in 2008.

Instead of universally ebbing and flowing with overall market conditions, stocks primarily move in tandem with their individual sectors. After all, companies in the same sector usually get their revenue from similar sources, and they're similarly affected by events.

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

Third time's a charm?
Back in January, we noticed the coal sector's surge stemming from higher prices and increased demand for U.S. coal supply. This past week has also been a good one for coal stocks, which are up approximately 10%. This group includes:

Another anthraciting opportunity?
The Market Vectors Coal ETF (NYSE: KOL) picked a good time (albeit a rocky one) to join the fray of sector ETFs. Launched in mid-January, the Market Vectors Coal ETF "seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Stowe Coal Index." So far, it's been a bumpy ride for the ETF, which has traded in a wide range spanning $32.59 to $44.75 in only four months. Despite the volatility, it's up 5% since inception.

This week's events have helped push it back into positive territory, assisted by Patriot Coal'smerger news and an improved earnings outlook from Arch Coal on Monday afternoon.

But this may be only the beginning of a coal renaissance. As my Foolish colleague Christopher Barker recently noted, "Coal has been a relative laggard in a series of industrial commodities that are now selling at historic highs, and it appears coal is finally waking from its slumber."

In January, CAPS player dsr9876 thought along the same lines on the Market Vectors Coal page: "The demands of emerging economies will also likely increase, and coal is expected to be the most rapid energy growth sector. Such big demand, and the fact that the coal index more than doubled last year, indicates that this ETF could be a money-making prospect."

Some, however, like CAPS All-Star hightechallthewa, are a little more skeptical. In December, he reminded us of the political risks associated with coal:

The whole Coal Sector is up ... due to this season's high demand for heating and electricity. Here, with coal that is, we have to be super careful. Politics, whether domestic or international, moves the sector in either direction.

While his bearish pick of Arch Coal is lagging the market by 36 points, politics may certainly end up being a major factor in coal's future, so posterity may end up justifying his thesis.

What do you think? Do coal stocks still have time to burn, or are they overheated? Voice your opinion on Motley Fool CAPS, where more than 96,000 investors are waiting to hear what you have to say. It's 100% free.