Everyone knows how well Tech is doing this year, but May was the month for Energy to make a run at leadership (click to enlarge):
You may recall that I highlighted an opportunity in small-cap Energy stocks near the end of the 1st quarter, so the 54% QTD move is gratifying. This is a sector that I had highlighted early in the year as likely to perform well due to the superior balance sheets among its constituents. At this point, I am thinking that the larger names look a bit better.
Small-Cap Consumer Discretionary stocks were too cheap at the beginning of the year, but they are overdone to the upside now.
Financials have been strong in large-caps but not in small-cap. Is this an opportunity? Probably not, as the fundamental outlook for smaller banks is deteriorating with the commercial real estate market. The relative difference is rather extreme, with S&P 500 stocks up 38% QTD but S&P 600 stocks down 10%. Don't chase it!
Utilities may be a great contrarian play now. With Treasury yields rising and concerns over regulation of carbon emissions, the sector has been under pressure.
Disclosure: No stocks mentioned
