Industrials Are On the Rise; Healthcare Still Looking For a Bottom

U.S. stocks dropped and the Standard and Poor’s 500 Index posted its biggest weekly slide since early March on concern that banks will be saddled with losses on mortgage bonds as the 10-month-old High-Grade Structured Credit Strategies Enhanced Leverage Fund, run by Bear Stearns senior managing director Ralph Cioffi, has lost about 20 percent this year and faced pressure from its creditors Merrill Lynch, Goldman Sachs and Bank of America among others. During the week the Dow led the way with a -2.1% loss followed by the S&P 500 -2.0%, the Russell 2000 -1.6%, and the Nasdaq -1.4%. The Chicago Board Options Exchange SPX Volatility Index, or VIX, jumped 13%.

This week’s top performing sectors on a relative basis were Technology and Industrials with a gain of 0.87% and 0.62% respectively. The poor sector performers were Utilities with a loss of 1.72% and Health Care with a decline of 0.85%. Additionally, mid cap and small cap value stocks lost 0.70% and 0.74% against growth stocks.

The chart of the normalized ratio of the Industrials SPDR (XLI) reveals that the Industrials Sector recently broke out of a tight trading range and is still on the rise. The Healtcare Sector (XLV) is still looking for a bottom, as the normalized ratio is near its 10-year low after a sharp decline in the last two months. The shaded areas represent two standard deviations above and below the SPDR’s 50-day moving average.