Energy's Pain Is Consumer Discretionary's Gain

Includes: FXD, SPY, XLE
by: Bespoke Investment Group

Each week in our Sector Snapshots report, one of the topics we cover is the performance of individual sectors relative to the S&P 500. Looking at relative strength helps to show which sectors are outperforming and leading the market, which sectors are underperforming and lagging the overall market, as well as other relationships between sectors. One notable trend in this week's relative strength charts was the notable divergence between the Consumer Discretionary and Energy sectors. As shown in the chart below, just as the relative strength of Energy began to fall off a cliff, Consumer Discretionary stocks took off.

Click to enlargeLooking at the above chart it seems completely reasonable that what would be bad for the Energy sector (lower energy prices) would be good for the consumer. Looking at a longer term chart, however, shows that this has not always been the case. Taking a longer term look at the relative strength charts of both sectors shows that from April 2010 through the end of 2010 both sectors were outperforming the S&P 500. In early 2011, however, the Energy sector's performance relative to the S&P 500 peaked while the Consumer Discretionary sector kept outperforming.

Click to enlarge