Sector Relative Strength

As the year winds down, now is as good a time as any to review how each of the market's sectors are performing versus the overall S&P 500.  Below we highlight the relative strength of each to the ten S&P 500 sectors over the last year.  In each chart, rising lines indicate periods where the sector is outperforming the S&P 500.  Charts with red shading indicate that the sector has underperformed over the last year.  Finally, in each chart we have also included red dots which indicate the four Fed rate cuts since August.

With the S&P 500 up less than 4%, 2007 is shaping up to be a below average year of market returns, but as the charts illustrate, the weakness has been contained to just two sectors - Consumer Discretionary and Financials.  Without the negative drag from those two sectors, the S&P 500 would have gained about 17% this year.

Looking at each of the ten individual sectors, we found that some notable changes have developed in recent weeks.  While Consumer Discretionary and Financials have seen zero benefit from the Fed rate cuts and remain in sharp downtrends, some of the more defensive sectors, which had continued to outperform, have all shown signs of weakness versus the market over the last two weeks.  While this may merely be profit taking following sharp rallies, it may also be an early signal that investors are beginning to increase their willingness to take risk.

   

Comments

[Greg Feirman]

Yeah, that is interesting. I think it's just consolidation and not a return to risk taking, though.

[Mark]

While there will be some ebb and flow, i see many of these trends continuing into 2008. Namely weakness in consumer discretionary and strength in Utilities and Energy.