Below we have updated our charts of sector relative strength. 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. Additionally, in each chart we have also included red dots that highlight each of the Fed rate cuts since August. We have also included a chart of the relative strength of the Transportation sector versus the S&P 500. While it has not been considered an 'official' sector since 2001, we thought readers would be interested in seeing the chart given the recent attention on the sector in the face of higher oil prices.
While the economy remains weak, sectors that typically benefit from a weak economy have not been faring particularly well. Recent action in the Consumer Staples and Health Care sectors has been nothing short of poor in recent weeks. Additionally, Telecom Services and Utilities continue to run into resistance at current levels. It's not just defensive sectors that have been acting poorly though. Financials remain in a pronounced downtrend, and with things going the way they have been going, the lower end of its range seems inevitable. The Industrials sector has also been showing weakness lately. This sector had been a stalwart through the energy crisis, but recently broke slightly below support, so the potential for additional weakness in that sector exists.
On the positive side, Consumer Discretionary stocks have been consolidating their outperformance and continue to hold support. Barring any additional weakening of the economy, this sector should move higher. Energy's uptrend keeps steepening. While the upper end of the range has remained roughly intact, as shown in the chart, the bottom end of its range has been steepening. Finally, Materials and Technology continue to trade in nice uptrends. Although both of these sectors are trading at the upper end of the range, any weakness in them as they approach resistance is likely to be temporary.
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