Sector Relative Strength: Staples Stall, Technology Shines

While last night's negative guidance from Cisco (CSCO) sent the stock lower in after-hours trading, the weakness proved to be temporary.  This reversal showed once again that within the technology sector, an underlying bid remains in place.  The chart below shows the relative strength of the Technology sector versus the S&P 500 over the last year.  In the chart, a rising line indicates the sector is outperforming while a falling line indicates the sector is underperforming.  In the chart we also show each time the Fed cut rates (red dots) and each time they left rates unchanged (black dots).  As shown in the chart, the sector's recent outperformance has been accelerating at a faster pace than we have seen at any other time in the last year.

 

While Technology has been outperforming, the relative strength in Consumer Staples appears to be stalling after peaking in November.  A defensive sector such as Consumer Staples starting to lag while Technology stocks are showing strength is a trend the bulls hope can continue.

   

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Comments

[Jason Ruspini]

The strong dollar was going to catch-up with them sooner or later. I wonder what the ratio of consumer staple companies with/without a lot of international sales looks like? PM/MO is the quickest, dirtiest proxy that comes to mind.

[Celal]

It might be interesting to see if the P/Es for the Technologies are supportive of this rally

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