This is a relative sector analysis that I wrote for myself. The text refers to relative moves — e.g. if I say that “Energy has dropped”, I mean that the Energy sector of the S&P 500 has underperformed relative to the index as a whole.


What drove the rally to new highs, 18 Apr – 29 Apr?

Outperformed:
Energy
Healthcare
Industrials
Materials
Tech

Underperformed:
Cons Disc
Cons Stap
Financials
Utilities

What has happened in the pullback?

Industrials fell and bounced back, so went nowhere net.

Outperformed:
Cons Disc
Cons Stap
Healthcare
Tech
Utilities

Underperformed:
Energy
Financials
Materials

What has happened YTD?

Outperformed:
Cons Disc (dropped sharply in Jan, then rebounded)
Cons Stap (dropped sharply Jan-Feb, then rebounded sharply)
Energy (rose to the start of April, then started falling back)
Healthcare (fell in Jan-Feb, then rebounded sharply)
Industrials (big pullback in late Feb, but otherwise rising consistently)

Underperformed:
Financials (underperforming all year, and more steeply recently)
Materials (all over the place but generally a downward trend)
Tech (dropped early Feb to April as the market rallied)

Utilities had two big downdrafts in Mid-Jan to Mid-Feb and in March, but recovered both times to end flat.

What sectors have been the rally drivers since August?

Outperformed:
Cons Disc (though weaker in the latest rally)
Energy (but fallling back since the start of April)
Industrials
Materials (but no support in 2011 — flattish)

Underperformed:
Cons Stap (BUT an important support for the latest rally)
Financials (a persistent drag)
Healthcare (BUT an important support for the latest rally)
Tech (big rally late-Sep to Oct, but dropping since then)
Utilities
So what is going on?

From August, markets were driven upward by Cons Disc, Energy, Industrials and Materials. Cons Disc generally outperformed Cons Stap.
Since the start of the year, Cons Disc has contined to be a driver but Cons Stap has turned from laggard to leader. Energy continued to be a driver until the start of April, but then fell back even as the oil price rallied. Industrials continue to be a driver of the market, and heathcare has also stepped in as a leader. Materials have been neutral net/net. So of the drivers of the post-August rally, Industrials remains strong,  Energy and Materials have dropped out, Cons Disc is looking weaker, and the defensive sectors Cons Stap and Healthcare have come to the fore. 
Analysis from Fidelity https://guidance.fidelity.com/viewpoints/sectors-and-cycles (below) leads me to conclude that, contra bullish market comment from the investment banks, the market has been upgrading the chances weaker or negative growth. That is consistent with the consistently disappointing data from the US over the past couple of months. Market action since the start of 2011 has been consistent with the late-cycle phase — the fact that this phase ought to be a whole Fed tightening cycle away is cause for concern. The reason for this action, of course, is that we are not in a normal recovery — we are in the slow recovery from a debt crisis.


As the SPX made a new high at the end of April, it was driven upward by Energy, Industrials, Materials, Tech and Healthcare, with the most dramatic rally in Healthcare. Energy and Materials have now had big falls on a relative basis, and Industrials has been losing momentum. It is hard to see the market regaining its highs on a healthcare rally — “market rallies to new 3-year highs on defensives” is not a common headline.

Of course, the risk to this view is that the sell-off in commodities is temporary, and energy and materials drive the market upwards again. The most likely reason why that would happen is that the commodity carry trade is still on, and markets either are not anticipating the end of QE, or do not (as I do) consider it a tightening. In other words, I may be reading medium-term changes of market leadership into short-term relative volatility.
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