Bespoke Investment Group: Sector Relative Strength

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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. In each chart we also include red dots that highlight each of the Fed rate cuts since August. We 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, interest in the group has been high given its performance in the face of higher oil prices.

Over the last year, four sectors (Consumer Discretionary, Financials, Industrials, and Telecom Services)have underperformed the S&P 500, while six have outperformed. More recently, however, we have seen some key reversals in the market's leading sectors. For example, Energy and Materials have broken their uptrends that had been in place for much of 2007. Additionally, the relative strength for Utilities peaked last week and has since had a quick reversal below support.

On the positive side, while Health Care stocks have been weak given the political climate, over the last month, the sector has outperformed by a wide margin. While a short-term reversal could be in the cards, we would expect the sector to continue to hold up relatively well even under a democratic administration. In our studies on sector performance since 1960, we found that when democrats control the White House and both houses of Congress, the Health Care sector has outperformed the S&P 500.

Finally, while the Financial sector has had a strong rally over the last couple of days, the gains are hardly enough to qualify as a reversal considering their losses over the last month.