Weekly Sector Review: July 13, 2012

by: Alex Gurvich

This week, the market-- as measured by the S&P 500 Index-- had a positive return of 0.16% return, trading at an annualized 15.1% volatility. The weekly sector performances, as measured by the S&P 500 sector indices were:

Sector Index Return Return over S&P Volatility* Correlation to S&P 500
Financials FIN.I 1.62% 1.46% 24.2% 96.4%
Utilities UTL.I 1.52% 1.36% 7.9% 76.0%
Healthcare HEA.I 1.29% 1.14% 10.7% 82.6%
Staples CST.I 1.10% 0.94% 8.0% 86.8%
Telecom TEL.I 0.73% 0.58% 12.6% 90.5%
Energy ENE.I 0.73% 0.57% 21.3% 83.1%
Discretionary CDI.I -0.41% -0.56% 15.0% 93.7%
Industrials IND.I -0.92% -1.07% 20.3% 95.4%
Materials MAT.I -1.29% -1.44% 19.0% 98.3%
Technology TEC.I -1.67% -1.82% 16.7% 98.1%
S&P 500 S&P 0.16% 0.00% 15.1% 100.0%
From July 6, 2012 to July 13, 2012 *Annualized
Click to enlarge

Last week the market was negative 0.55% return and 11.1% volatility. So this week we had an essentially flat market, with a marked uptick in volatility. The entire week was full of negative sentiment and returns, but Friday the 13th did the trick this time. Pretty much the entire weekly gain came from Friday's 1.65% jump.

The positive performers, as measured by the Excess Return over S&P 500, were Financials, Utilities, Healthcare, Stapes, Telecom and Energy sectors, while the negative performers were Technology, Materials, Industrials and Discretionary sectors.

Surprisingly, the Financial sector-- despite deepening losses at JP Morgan (NYSE:JPM)-- has done very well, as investors are slowly coming to terms with the potential stabilization in the European markets, while the long term 30 year treasury yield dropped four basis points this week. What was not a surprise due to a mostly negative week is that all four defensive sectors have done well. Interestingly enough, the Energy sector is still doing well, despite weakening manufacturing sector here in the U.S. and lower demand from Europe and China.

The growth sectors, Technology, Materials, Industrials did poorly, as they should have done in the overall negative markets and uncertain economic recovery environment.

As the summer continues and the earnings season begins to unfold, we see continued increase in volatility and more negative than positive earnings surprises, coupled with increase in Middle East tensions, all driving prices lower or in a range bound markets.

Disclosure: I am short SPY.

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