Are Sectors Rotating or What?

The S&P500 closed Wednesday at 1461. The closing high prior to the correction in the fall was 1465, which came on September 14th. So today I wanted to take a look at how the components of the index have fared relative to one another during those 80 days. This allows us to see whether the internals of the market have improved since last time we were at these levels. In other words, are the defensive sectors leading the way here, or are we rotating into some more aggressive sectors that might indicate a strengthening market core?

On a relative basis, Healthcare was the best performer, followed by Industrials and Financials. Then Materials, Consumer Discretionary, and Staples round out the outperformers. Energy and Utilities could not keep up with the market and Tech basically just got smoked (click chart to embiggen):

1-9-13 sector rotation

We’re definitely getting mixed signals from the internals since the September highs in S&Ps. So here’s a look at the relative performance for each of the SPDR Sectors over the past year. Look at Financials, Discretionaries and Healthcare leading the way. And notice how at Energy and Utilities have just been horrible places to be on a relative basis (click chart to embiggen):

1-9-13 year sector roation

And finally, this might be my favorite new tool on the market. Bloomberg has just created a program called the Relative Rotation Graph. The x-axis is the relative strength and the y-axis is the momentum of that ratio. So we can see the trends in relative strength as each sector goes from improving to leading, to then weakening and lagging again. How cool is this?

1-9-13 sector graph bloomberg

Here is a weekly sector rotation graph showing Utilities and Technoology trying to get from “Lagging” towards “Improving”. Meanwhile the Financials appear to be rolling over from the “Leading” quadrant and into “Weakening”. The plots on the outer ends are more sustainable trends than the ones in the middle that can rotate from quadrant to quadrant much faster. Materials and Industrials are the newer leaders here, but I’m not sure how long that could last based on their positioning on the graph. Interesting right?



Stockcharts Perf Chart: S&P Sector ETFs