[Chart Of The Week] A Leading Sector vs A Lagging Sector

JC Parets
February 9, 2016

In every market there are leaders and there are laggards. This is the case in both bull and bear markets. Regardless of the environment, some stocks and sectors will simply outperform others. Sometimes, this relative performance tells us a lot about the overall risk-appetite for institutional investors and in which direction they are headed.

Today's Chart Of The Week

is extra informative because we are seeing a major breakout taking place after 7 years in decline. This one peaked in March 2009, just as the U.S. Stock Market bottomed. Today it is breaking out once again. What does this say for risk appetite?

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This is the S&P Utilities Sector Index ETF relative to the S&P Financials Sector Index ETF:

xlu xlf

We have seen a series of lower highs and lower lows for 7 years. Utilities have been a serial underperformer. This is not a secret. But it has been even worse vs Financials.

An interesting point I'd like to make is how this spread strengthened throughout 2011 and peaked just as the stock market put in an important bottom in the Fall of 2011. Since then the U.S. Stock market has exploded higher to new all time highs and this spread has done nothing but go down.

Things have now changed. We are breaking out. What does that tell you about the direction of the U.S. Stock Market? When this one peaks, I would expect the stock market to bottom out within a very short period of time. This one does not look like it has topped out.

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