An Epic Set Of 'Alligator Jaws,' Part Deux

Jesse Felder profile picture
Jesse Felder
4.11K Followers

Summary

  • Exactly a year ago I shared a chart here that represented “An Epic Set Of Alligator Jaws.” It plotted the weighting of the energy sector within the S&P 500 Index versus the combined weightings of the tech and communications services sectors.
  • The energy sector has risen more than 60% over the past twelve months, outperforming the index, while the combined tech and communications services sectors have fallen, underperforming the index, resulting in those alligator jaws closing to some degree.
  • But it’s astounding to note how little these jaws have actually closed in light of the dramatic performance gap between the two groups of stocks.

Business people meeting to discuss strategy and plan for business and investment.

Wasan Tita/iStock via Getty Images

Exactly a year ago I shared a chart here that represented “An Epic Set Of Alligator Jaws.” It plotted the weighting of the energy sector within the S&P 500 Index versus the combined weightings of the tech and communications services sectors (which were a single sector until recently). “For my money, those alligator jaws look more likely to snap shut than to open even wider,” I wrote at the time. Indeed, the energy sector has risen more than 60% over the past twelve months, outperforming the index, while the combined tech and communications services sectors have fallen, underperforming the index, resulting in those alligator jaws closing to some degree.

S&P 500 sector weightings

But it’s astounding to note how little these jaws have actually closed in light of the dramatic performance gap between the two groups of stocks. In fact, what I wrote a year ago is just as relevant today as it was then: “Many may be asking themselves whether this trend is sustainable. But when you look at the historical weighting within the S&P 500 Index, energy still comprises a smaller portion than it did 20 years ago, at the dawn of its last major bull market, and tech and communications services are just below their all-time highs set back then at the peak of the DotCom Mania. So I would just ask in return, looking at the chart above, does it appear that energy has become overextended? Or is it more likely popular sectors like tech still have some give back ahead of them?”

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Jesse Felder profile picture
4.11K Followers
Jesse has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report.
Follow
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.