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. Finally, in each chart we have also included red dots that highlight the five Fed rate cuts since August.
Once again, while recession seems to be the theme of the day, most of the sectors that one would consider defensive in nature have recently been coming under pressure. After breaking its uptrend a few weeks ago, the Consumer Staples sector attempted but failed to rally back above the trendline, which is now acting as resistance. In the last few days, continued pressure in the Health Care sector has also caused a break of that sector's uptrend. Telecom Service stocks, which historically have had the cushion of high dividend yields, have been extremely weak, causing their relative strength to decline sharply. Finally, Utilities that have typically been considered the safest of the safe are sitting right at important support.
Outside of the defensive sectors, relative strength has been mixed but more positive. While Consumer Discretionary and Financials are in long-term downtrends, both sectors have been outperforming the market in the short term. Relative strength is breaking out to new highs in Energy and Materials since these sectors benefit from inflation and the weak dollar.
Not every cyclical sector is showing strength though. In the Industrials sector, relative strength turned lower after failing to break out to new highs, while tech stocks, even after Tuesday's news from IBM, have been a disaster.