Relative Strength Of Materials And Financials

Includes: IYF, IYG, VAW, VFH, XLF
by: Bespoke Investment Group

It's been an ugly few days for the Materials sector. With rumors of a commodity hedge fund running into trouble, commodities have been under intense selling pressure. Along with the slide in actual commodities, commodity-related stocks have also been plunging.

The chart below shows the relative strength of the large-, mid-, and small-cap Materials sectors vs. each of their respective indices (S&P 500, S&P 400 Midcap, and S&P 600 Smallcap). When the line is rising, the sector is outperforming its overall index and vice versa when the line is falling. Following the declines in the sector this week, both the large- and mid-cap Materials sectors are underperforming their respective indices over the last year, while the small-cap sector has given up half of its outperformance relative to the S&P 600 Smallcap index over the last year.

In the Financials sector, relative strength has been divergent based on market cap. Since late 2012, large-cap Financials were outperforming the S&P 500, while small- and mid-cap Financials were both lagging their respective indices. In the last couple of weeks, though, both the small- and mid-cap Financials sectors have seen a rebound in their relative performance. This catching up has also occurred as the relative strength of large-cap Financials has stalled out.