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Not pretty, is how one would probably describe the markets for the past two months. So the best idea is to stay defensive, meaning utilities, consumer staples and healthcare.

This past week's rally has restored some of the losses, but lots of fears remain. In April, the Standard & Poor's 500 stock index was down 0.75%, and in May the market slid 6.27%. The uptick that began Tuesday lifted the S&P to a 5.5% total return for the year.

In terms of individual sector performance for May, we have the following picture for SPDR sector exchange traded funds, with the excess return over the S&P 500's performance (it lost 6% last month):

SectorTickerReturnExcess Return
UtilitiesXLU0.56%6.57%
StaplesXLP-1.17%4.84%
HealthcareXLV-3.63%2.38%
DiscretionaryXLY-5.50%0.50%
IndustrialsXLI-6.32%-0.32%
TechnologyXLK-6.34%-0.33%
MaterialsXLB-7.77%-1.77%
FinancialsXLF-9.20%-3.20%
EnergyXLE-10.68%-4.68%
 SPY-6.01%0.00%
 S&P-6.27%-0.26%

The only positive performance was from the utilities sector. I always look at the excess return relative to the index, the ETF SPDR S&P 500 (SPY) in this case, to measure individual relative performance. During May the market outperformers were utilities, staples, healthcare and discretionary sectors.

Despite what we are told, that the economy is on the mend, the markets obviously have doubts. The growth sectors such as industrials, technology, materials and energy were either mild or severe underperformers. This is certainly not a value-based portfolio allocation; this is pure and simple fear allocation based portfolio.

Although our investment philosophy should more sophisticated than "sell in May and go away," this year the old adage proved to be correct. So what does a prudent investor do in this environment with the U.S. economic recovery slowing down, employment staying stubbornly high, the potential exit of Greece from the euro zone, banking bailouts in Spain and the Chinese economy considerably slowing down?

In this environment, an investor could certainly be safe staying in the defensive sectors. Our view this might be too much of a defensive position, which does not reflect the fundamental value of each sector when the market recovers. And recovers it will. The perennial question is when.

Our Rockledge Sector Scoring and Allocation Methodology (SectorSAM) provides us with fundamental based valuation of the S&P 500 economic sectors, while looking at the short term market moves to tell us when it is prudent to enter a long (or short) position.

The current view is that is still wise to stay defensive, with utilities, staples and healthcare sectors, in the near term for the next several weeks, while the market digests the latest U.S. economic data. But we believe that the U.S. economy will once again show signs of improvement.

At that time, look first at the materials and technology sectors. We believe that the industrials sector will continue to move sideways, while the energy and financials sectors will keep on underperforming and our view is to stay away from them.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours.

Additional disclosure: At the time of publication, Rockledge clients had long and short positions in SPY, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV and XLY in some portfolios.