Sector Relative Strength: Technology and Financials

The charts below show the relative strength of the Financial and Technology sectors versus the S&P 500. In each chart, a rising line indicates that the sector is outperforming the S&P 500 while a declining line indicates underperformance. We have also included dots showing each time the Fed has left rates unchanged (blue dots). Believe it or not, the Fed hasn't made a change in interest rates in the last year.

Given the fact that Technology and Financials are the most widely followed sectors in the market, any meaningful rally in equities will need to see both Financials and Technology participating. As shown in the charts, while Financials have stopped rolling over, they are hardly outperforming. Since the last Fed meeting on November 4th, Financials have merely been performing inline with the S&P 500. Unlike Financials, Technology stocks have been outperforming the market over the last several weeks. Even here though, the sector has yet to make a new high in relative strength. If the S&P 500 is going to stage a meaningful break above the 1,100 level, we will need to see these two sectors leading the way.