Information Technology Sector Emerging as S&P 500's New Leader

Bank of America Merrill Lynch released its latest sector-by-sector analysis of the S&P 500 on Monday. Here are some highlights:

• Financials have outperformed since March, but remain entrenched in bear market levels. "[The sector] requires a longer-term period of basebuilding before a sustainable rally can be seen for the sector," the note said. Analyst models show financials are overbought and are likely to remain so, a positive sign. However, earnings-per-share revisions and analyst rankings are still sour. "Are analysts behind the curve?" the note asks.
• Energy remains a long-term market leader, but has underperformed during the March rally and may lose its relative upwards trend from 2003. "To improve the relative chart pattern, a breakout above the downtrend line from the June 2008 high would be a step in the right direction," the note said. EPS targets and analyst revisions remain favourable, however.
• On the other hand, the Information Technology sector is emerging as a market leader. "Relative to the S&P 500, information technology is showing significant signs of strength," the note said. "This has the potential to complete a multi-year base vs. the S&P 500 and position technology for a longer-term market leadership trend." The sector has returned to overbought levels, and may stay there for a while, the note said.

Other sectors with a positive outlook include health care and utilities, while consumer discretionary and industrials may stall.

Comments

[Larry House:]

Today's market action may not support your thesis on tech. What these sectors HAVE done does not mean they will continue so.

Jul 06 01:48 PM

[TurtleTrader72:]

I tend to agree with the writer here..Historically speaking, the leaders of the previous secular (long term) bull market rarely lead the next (long term) bull market. This means that energy and financials will likely not lead the next bull market over the longer term. This does not mean that these sectors will not have good days or weeks, I am simply refering to the longer term average. More recently, the NASDAQ has shown the highest relative strength during the recent bull run so if this trend continues over the longer term i would favor tech to be the leader. Fundamentally speaking, many tech companies have relatively better balance sheets with lower debt levels than many companies in other sectors. I specifically like the semi conductor group as that sector has been out of favor for a very long time and may now have its turn to lead the pack. With that being said, the leaders tend to have a tendacy to correct the hardest when the market turns which explains the recent pullback in the market. I speculate that after this recent correction is over tech will continue to out perform but i guess only time will tell

Jul 06 02:45 PM

[Tom Colangelo:]

You can count the number of tech firms worth investing in on 2 hands.

No breakthrough technology and just the same ole tired extension of too many features on useless gadgets that keep kids busy when they are awake.

No more DECs, Dells, or new smart applications on the horizon.

Twitter and texting shows the pathetic shallow intellict of most of the population the pee their pants while they wait for the next "NEW" thing to own.

Just the beginning of the downfall of an economic empire that has lived all of 150 years starting with the industrial revolution.

Jul 06 10:59 PM