Sector Relative Strength

by: Bespoke Investment Group

With the S&P 500 on the verge of making a new bull market closing high, we wanted to update readers regarding the relative strength of the ten market sectors in order to provide a picture of which companies are driving the rally and which are doing their best to keep the market down. For each chart a rising line indicates the sector is outperforming the S&P 500 while falling lines indicate sectors that are underperforming the market.

First the bad news. Sectors that have been lagging the market are all defensive in nature. As shown, the relative strength of Consumer Staples, Health Care, Telecom Services, and Utilities has been on the decline since the start of the year. Most of these sectors were last year's winners, but this year investors have fallen out of love with these sectors for flashier, cyclical sectors.

Now the good news. While Consumer Staples have been underperforming, the Consumer Discretionary sector keeps on chugging. It seems no matter what the market is doing, this sector simply outperforms. Other sectors that have been leading the market of late are cyclical in nature and include Industrials, and Technology (led by AAPL). Even Materials and Financials, which were weak last year, have managed to see big gains this year. The chart of Financials is especially noteworthy. Even as it has been the second best performing sector so far this year, it still has a long way to climb before digging itself out of last year's hole.

Finally, although the price of oil is breaking out of its recent trading range, Energy sector stocks have been lagging. While the sector has shown modest improvement in recent weeks, it is still underperforming the S&P 500 by more than a modest amount over the last year.

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