Weekly Sector Review - July 27, 2012

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 |  Includes: SPY, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY
by: Alex Gurvich

This week the market, as measured by the S&P 500 Index, had a positive return of 1.71% return, trading at an annualized 21.5% volatility.

The weekly sector performances, as measured by the S&P 500 sector indices were:

From July 20, 2012 to July 27, 2012
Sector Index Return Return over S&P Volatility Correlation to S&P 500
Telecom TEL 3.84% 2.13% 29.1% 90.2%
Financials FIN 2.82% 1.11% 18.8% 98.8%
Industrials IND 2.51% 0.80% 21.9% 97.6%
Energy ENE 1.95% 0.24% 27.0% 94.9%
Staples CST 1.67% -0.04% 16.6% 96.4%
Healthcare HEA 1.66% -0.05% 23.8% 94.9%
Discretionary CDI 1.19% -0.52% 23.6% 98.6%
Utilities UTL 1.04% -0.67% 17.7% 96.6%
Technology TEC 0.92% -0.79% 23.8% 96.9%
Materials MAT -0.83% -2.54% 21.8% 95.8%
S&P 500 S&P 1.71% 0.00% 21.5% 100.0%
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This week S&P 500 return was three times higher than last week's return of positive 0.43%, but it came at doubling the volatility.

From July 13, 2012 to July 20, 2012
Sector Index Return Return over S&P Volatility Correlation to S&P 500
Energy ENE 2.56% 2.13% 7.4% 81.8%
Technology TEC 1.90% 1.47% 20.5% 81.2%
Materials MAT 1.85% 1.41% 14.1% 87.9%
Industrials IND 0.83% 0.40% 17.5% 89.6%
Utilities UTL 0.82% 0.38% 3.4% 44.4%
Discretionary CDI 0.32% -0.11% 15.2% 95.2%
Healthcare HEA 0.20% -0.23% 15.3% 87.8%
Telecom TEL -0.37% -0.81% 18.0% 31.9%
Staples CST -0.87% -1.31% 6.4% 87.4%
Financials FIN -2.35% -2.78% 13.1% 75.6%
S&P 500 S&P 0.43% 0.00% 11.4% 100.0%
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This week was quite extraordinary how the first three days of the week the market was down 1.81%, but came roaring back with 3.59% on Thursday and Friday to close in a well positive territory. There is nothing like central banker's market supporting statements to bring about the euphoria. In case of the European Central Bank, it was to support the currency, while in case of the Fed here in the USA, to support the economy. Whereas the investors have read it as a promise to support the stock market.

The volatility doubled in one week and sector correlations skyrocketed as well - one could easily look back towards wild market swings about the same time last year - it was not a pretty sight.

The Telecom sector did quite well, reversing its negative performance from last week. But it is the Financial sector that clearly benefited from ECB's statements, despite lower profitability for the US financial instructions. The other winner was Industrial sector, betting on continuation of lower rates, and behaving like the economy is about to jump.

The big loser was the Materials sector sharply reversing its gains from last week, as we saw a slowdown in new house sales. While the Technology sector also did a similar reversal due to totally unexpected slowdown coming from Apple.

The summer is heating up, the volume is low and earnings season is trickling in, with more negative than positive performance. It seems to be wise to take this week's gains off the table and enjoy a cash position somewhere in the sun.

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Month to Date and Year to Date sector performances are provided as a reference.

From June 29, 2012 to July 27, 2012
MTD Sector Performance Index Return Return over S&P Volatility Correlation to S&P 500
Energy ENE 4.96% 3.21% 19.9% 85.1%
Telecom TEL 4.01% 2.26% 19.3% 75.1%
Utilities UTL 2.95% 1.20% 10.2% 78.5%
Staples CST 2.44% 0.69% 10.1% 87.1%
Healthcare HEA 2.10% 0.35% 15.0% 87.7%
Discretionary CDI 1.21% -0.54% 15.3% 91.7%
Industrials IND 0.99% -0.76% 18.2% 91.3%
Financials FIN 0.76% -0.98% 18.3% 85.5%
Technology TEC 0.63% -1.12% 18.9% 88.7%
Materials MAT -0.68% -2.43% 17.1% 88.2%
S&P 500 S&P 1.75% 0.00% 14.5% 100.0%
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From December 30, 2011 to July 27, 2012
YTD Sector Performance Index Return Return over S&P Volatility Correlation to S&P 500
Telecom TEL 17.89% 7.68% 12.8% 60.6%
Financials FIN 13.50% 3.29% 20.0% 90.3%
Discretionary CDI 13.42% 3.22% 14.9% 90.8%
Technology TEC 13.42% 3.21% 16.9% 90.6%
Healthcare HEA 11.97% 1.76% 11.2% 88.6%
Staples CST 9.58% -0.63% 8.8% 79.3%
Industrials IND 7.11% -3.09% 16.6% 93.7%
Utilities UTL 5.66% -4.54% 9.2% 50.6%
Materials MAT 4.59% -5.62% 18.4% 90.4%
Energy ENE 1.43% -8.78% 18.7% 87.5%
S&P 500 S&P 10.21% 0.00% 13.5% 100.0%
Click to enlarge

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