S&P Sector Movement

In The Highstreet Group by admin

Sector Movement within the S&P 500

The S&P 500 is made up of 10 master sectors, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Telecom Services and Utilities. In the early stages of a bull cycle the best sectors to invest in are growth related sectors that are rewarded by economic expansion (See graph above). As we move later into this three year bull cycle we are seeing signs of a rotation back into the defensive sectors due to the fact that the Fed’s Quantitative Easing program is being met with reduced economic growth expectations. Utilities, Consumer Staples and Telecom are beginning to lead the market.

The Relative Rotation Graph above compares the relative price and relative momentum of the sectors in the S&P 500 versus the index itself. It shows a clear relative rotation back into defensive sectors. During the last three months, the Telecoms, Utilities and Consumer Staples sectors have all moved from the lagging quadrant into the improving quadrant and are now outperforming the broader market on a relative basis. This is another reason for the cautious stance we are taking within the portfolios as we maintain a higher level of cash.

The combination of new market highs being unconfirmed by the market breadth indicators, referenced in our prior post, coupled with the rotation into defensive sectors suggest that the S&P may be in the latter stages of its advance. Over the past two months, deteriorating market internals (technical indicators) not only have weakened, but are now weakening further even in spite of the markets creeping higher. We continue to remain cautious as we maintain short positions in the S&P 500, NASDAQ and Dow and a 25% cash weighting. We will monitor the markets as we enter into Thanksgiving. Have a pleasant Holiday.

To learn more about John Bartoletta, click here