Macro Wrap – One Sector Leader, Two Major Laggards, $XLY, $XLP, $XLU

Following big moves in the indices, I find it useful to see who’s leading and who’s lagging. We’ve rallied almost 100 points in the S&P 500 in a couple weeks. Which individual sectors have been the strongest and which have been the weakest?

Let’s start with the leaders. The leader of the entire 2009-present bull market, and now for 2013 as well, is the consumer discretionary sector. XLY has made a new all-time high on the most recent rally, and did not even break below its mid-April high on the earlier selloff:

1 year daily chart of XLY, with 50 day ma (pink), 100 day ma (green), and 200 day ma (black), Courtesy of Bloomberg

Another cyclical leader in 2013 has been the financials sector. It has not quite made a new 2013 high on the recent rally, though it’s close. The real strength in the sector has been concentrated in the regional and commercial banks. The XLF ETF is about 20 cents from a new high:

1 year daily chart of XLF, with 50 day ma (pink), 100 day ma (green), and 200 day ma (black), Courtesy of Bloomberg

The final cyclical leader in 2013 has been the industrials sector (XLI). Its chart shows a bit more weakness than financials, but a close resemblance overall:

1 year daily chart of XLI, with 50 day ma (pink), 100 day ma (green), and 200 day ma (black), Courtesy of Bloomberg

Contrast that strong performance with the weakness in the “defensive” sectors. The consumer staples sector was a prior leader for the entire bull market. However, the consumer staples sector’s strength has fizzled in the past 2 months. It is now trading right at its 50 day moving average (now downward sloping) despite the recent rally:

1 year daily chart of XLP, with 50 day ma (pink), 100 day ma (green), and 200 day ma (black), Courtesy of Bloomberg

Utilities has lagged throughout the bull run, but it got off to a strong start in 2013. That has reversed sharply in the past 2 months as interest rates have risen. XLU is the one major sector ETF that actually broke its 200 day moving average on the recent selloff:

1 year daily chart of XLU, with 50 day ma (pink), 100 day ma (green), and 200 day ma (black), Courtesy of Bloomberg

Health care remains the one defensive sector that we like (and is probably our favorite sector in the market overall from a fundamental valuation perspective). It has significantly outperformed its “defensive” peers over the past couple months:

1 year daily chart of XLV, with 50 day ma (pink), 100 day ma (green), and 200 day ma (black), Courtesy of Bloomberg

The “middling” sectors are the remaining big three – energy, materials, and technology. They have underperformed throughout 2013, with the recent bounce no exception.

In sum, consumer discretionary continues to be the obvious leader, while the main sectoral laggards in the past couple months have been consumer staples and utilities. In the short term, I’m most interested to see whether financials and industrials can make a new 2013 high in the coming weeks. Continuation or rejection of the broader indices from here likely hinges on it.