One of the major concerns that we had late this Spring was that the defensive sectors were the ones showing leadership. Sure, the S&P500 was making new highs in April and everything appeared to be both hunky and dory on the surface. But underneath, defensive groups like Consumer Staples were the ones leading this market and making new highs. Here on Allstarcharts, we were waiting for that important sector rotation to take place to confirm these new highs (See Where is the Sector Rotation May 16th). This sort of rotation is a key characteristic of bull markets. Well the leadership never rotated into the offensive sectors, and here are today with the S&P down over 18% from those Spring highs.
This is going to be something we will continue to watch closely. Defensive sectors tend to outperform the overall market during downturns while some of the more aggressive sectors usually underperform. Here is a chart showing the year-to-date Relative Performance of each sector:
Notice how throughout the year Consumer Staples ($XLP), Healthcare ($XLV) and Utilities ($XLU) have dramatically outperformed the overall market. In addition, the Financial Sector ($XLF) has been absolutely decimated both on an absolute basis and relative to the rest of the market. Watch for changes in this trend for potential changes in the direction of equities as an asset class.