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Whenever you talk about which sectors of the market are working, market cap is one aspect that is usually overlooked. In the charts below, we highlight the relative strength of each S&P sector compared to its corresponding index across all three market cap levels (S&P 500 large cap, S&P 400 mid cap and S&P 600 small cap). For example, in the Consumer Discretionary sector we compare the performance of small cap Consumer Discretionary stocks to the S&P 600 Small Cap Index. Rising lines indicate that the sector is outperforming its index while a falling line indicates that the sector is underperforming. As you will see in the charts, normally the sector's relative strength moves in the same direction across all three market cap levels, but there are times when they diverge, and these divergences can be a sign that a turn is coming.

Consumer Discretionary stocks have been a market leader since the start of the bull market, and that continues to be the case for large cap stocks in the sector. In the mid cap sector, we are seeing a similar scenario as it has rebounded from a period of underperformance in late 2012 and early 2013. In the small cap Consumer Discretionary sector, though, we have seen a loss of momentum since June. Theoretically, weakness for the consumer would be felt first by smaller companies, so this is a trend to watch.

In the Consumer Staples sector, relative performance has been varied across market caps. While mid cap Consumer Staples stocks are handily outperforming other the S&P 400 Mid Cap Index, large and small cap stocks in the sector have been performing roughly inline with their peer indices over the last year. More recently though, it appears as though mid and large cap Consumer Staples stocks have been losing momentum, while small cap stocks in the sector have started to rebound as evidenced by the rising blue line.

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As tensions have flared up in Syria, small and mid cap Energy sector stocks have been rebounding relative to their respective indices. Large cap Energy stocks have seen little benefit from heightened tensions, though.

In the Financial sector, we have made numerous mentions in the past regarding the fact that the heightened regulatory environment has disproportionately hurt mid and small cap stocks in the sector, while large cap stocks in the sector have been a beneficiary. As shown in the chart for that sector, large cap Financial sector stocks are still outperforming the S&P 500, while its mid and small cap peers are underperforming their respective indices by a wide margin. That being said, over the last several weeks, even large cap Financials have been seeing a loss of momentum.

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Health Care sector stocks are all outperforming their respective indices over the last year. Like the situation in the Financial sector, though, large cap stocks are outperforming their respective indices by the widest margin, and that is most likely in part due to the fact that large cap companies benefit the most from regulations like ObamaCare.

Industrials sector stocks have seen a big rebound off their relative lows from the spring. In the S&P 500, large cap Industrials were performing inline with the S&P 500 in early Summer, but after a big run since then they are handily outperforming the index. A lot of the optimism for this sector has been the result of improved economic data outside of the US, so as long as that data keeps showing signs of strength, the sector should continue to outperform.

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Materials sector stocks across all three market cap ranges have lagged the market since their highs earlier this year. While small cap Materials sector stocks have just poked into positive territory relative to the S&P 600 Small Cap index, like their mid and large cap peers, they remain in downtrends on a relative basis.

Just like Financials, Technology has seen wide divergences in terms of performance across different market caps. Only in this case it has been the opposite. Weighed down by stocks like Apple (NASDAQ:AAPL) Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT), large cap stocks in the sector have underperformed the S&P 500 by a wide margin. Conversely, the small cap Technology sector has been one of leading sector among small caps.

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With only 15 stocks combined in all three Telecom Services sectors, there is not much to say about the sector. That being said, the sector has been hurt by rising interest rates which have made the high yielding stocks in the sector less attractive.

Like the Telecom Services sector, Utilities sector stocks have been hurt by rising interest rates. If you look closely at the chart for that sector, though, you can see that the sector has gotten a boost recently as the decline in Treasury yields is making the sector relatively more attractive.

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Source: Relative Strength By Market Cap