Leadership Stays Defensive in 2013

Here we are at the end of the first quarter. So now is probably as good a time as any to take a look at sector performance for the year. And it’s the defensive names that have been the clear leaders so far. We first brought this up a month ago, and the rotation into more defensive sectors continues. Coming into March, the leaders for the year had been Consumer Staples and Healthcare. Now with the Healthcare space leading the way once again this month, the year-to-date sector performance story remains pretty much the same: Defensive: Healthcare and Consumer Staples are the clear winners, while Tech and Materials lag big time. Here are the YTD numbers relative to S&Ps:

3-28-13 sector roation ytd

For the most part, this action is nothing new. Industrials struggled a bit more than usual this month, while Consumer Discretionaries caught a little bit of a bid. But other than that, the leaders for the last month really stand out: Staples, Healthcare, Utilities:

3-28-13 sector roation

This rotation into defense and out of the more aggressive leaders that took us to historic highs last year is one of the reasons I’ve been extra cautious with US Equities lately. We’ve seen some bearish divergences in momentum, major selling and even bear markets in Europe and Emerging markets. But the daily charts for US Stocks remain intact. And sure, defensive sectors can keep leading this market higher. But if I’ve learned anything throughout my career, it’s that towards the end of the run, these defensive guys tend to lead. So this isn’t surprising.

Look at the daily chart of S&Ps. They still look fine for now. But if they start to break, that’s a different story.

3-28-13 spy

Like I mentioned last week, the 153s are still my level to watch in $SPY. As long as we’re above, I believe things are still fine in the US. But watch your back.