In 2 short trading weeks, we've seen the broader market fall by roughly 8%. We could blame the ongoing financial fallout, though its representation in the S&P 500 is a mere 1/10 of the price movement.
We could slam Microsoft (MSFT), eBay (EBAY) and other high profile earnings misses in the influential tech sector. Then again, IBM (IBM), Google (GOOG) and Apple (AAPL) were sharp, all things considered.
Yet, no matter how we interpret the news, it seems that the biggest trouble is unprecedented uncertainty. In other words, it hasn't been the abysmal earnings by banks, tech or consumer discretionary companies; rather, it's more about the complete lack of visibility going forward.
Renewed confidence may appear next week, next month, next quarter, the 3rd quarter or next year. Nobody has any idea. This kind of uncertainty causes the nervousness and volatility that has plagued the marketplace since late last summer.
Hope, however, still springs up in very familiar places. For instance, in the last 10 trading sessions, the S&P 500 lost 8% of its value. In contrast, Utilities (XLU), Biotech HOLDRS (BBH) and PowerShares Biotech/Genome (PBE) hugged the flat line.
The comfort hasn't just appeared in the ETF indexes themselves, which are often influenced by the largest market-cap stocks; specifically, more individual utility stocks advanced rather than declined. Similarly, more biotech stocks seem to be advancing than declining. And this has been taking place as the overall markets continue to test/retest the October/November lows.
Why is this important to know? It may mean that there is no quantifiable change in sector leadership; that is, the same economic segments that held up better in 2008 -- pharmaceuticals, biotech, healthcare, utilities, consumer staples -- are still in complete control.
On a 1-year performance chart of industries and sectors, SPDR Biotech (XBI) fell just -7%. Staples (XLP) with -15% was next, followed by broad Health Care (XLV) and Utilities (XLU) with -23%. All of these were leaps and bounds better than the dreadful 40% losses for the broader market.
Until there's evidence of a change in sector leadership, whether that comes from tech, consumer discertionary, energy, materials or industrials, safer equities may make the most sense. Utilities (XLU) have a yield north of 4%.
I am less comfortable with broad health care, sensing that the strength continues to come from the drug makers and drug providers. (You may wish to review why pharma is providing stability in an unstable world.)
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