Sector Rotation In March

by: Bespoke Investment Group

Below is a good look at sector rotation in the month of March. As shown, the S&P 500 as a whole had 68% of its stocks above their 50-day moving averages at the end of February, and 67% are above their 50-days with one day left in March -- basically unchanged. On a sector basis, however, there has been a real shift over the last month.

As shown, Health Care, Consumer Discretionary and Technology were big leaders coming into March, and they all had more than 70% of their stocks above their 50-days. These three sectors have been weak lately, though, and now they have the worst breadth readings in the market. Health Care is a real standout due to Biotech's recent fall. At the end of February, 83% of Health Care stocks were above their 50-days, ranking it second behind Utilities for the strongest breadth reading. Now just 46% of Health Care stocks are above their 50-days, which is the worst reading of any sector.

Aside from Utilities, whose reading is unchanged at 90% month-over-month, the other five sectors with breadth levels currently stronger than the overall market all had below-market readings at the end of February. Consumer Staples, Energy and Financials have all seen big bounces is the percentage of stocks above their 50-days this month.

March has been a month of rotation out of what had been working into what had not been working. As we head into April, the big question is whether this shift is a short-term mean reversion trade or the start of a longer-term trend.