Sector Relative Strength (6/5/08)

Below we have updated our charts of sector relative strength.  In each chart, rising lines indicate periods where the sector is outperforming the S&P 500.  Charts with red shading indicate that the sector has underperformed over the last year. 

Additionally, in each chart we have also included red dots that highlight each of the Fed rate cuts since August.  We have also included a chart of the relative strength of the Transportation sector versus the S&P 500.  While it has not been considered an 'official' sector since 2001,  interest in the group has risen given its performance in the face of higher oil prices.

Over the last several months we have been noting the lack of relative strength in defensive sectors such as the Consumer Staples, Health Care, and Utilities.  The fact that these sectors were underperforming the market was a positive signal for the overall economy and the stock market.  However, over the last week, we have seen signals that trends in these sectors may be beginning to shift.  Relative strength in both the Consumer Staples and Health Care sectors are starting to break short-term downtrends, while the Utilities sector has peaked its head above resistance that has been in place for the last several months. 

While it is still too early to say the longer-term trends in these sectors are broken, they should be watched closely in the following weeks for signals that the economy may be facing additional weakness.

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