It’s hard for me to make a bearish case for stocks with the Consumer Discretionary sector breaking out on both an absolute and relative basis. In other words, the Consumer Discretionary sector index fund is not only coming out of a 5-month base to new all-time highs, but relative to the S&P500, Discretionaries are coming out of a 30-month base to make new all-time relative highs. This is tough to ignore.
In early May, I pointed out that the Consumer Discretionary vs Consumer Staples ratio making new all-time highs was sector rotation suggesting higher stock prices in general. Since then the S&P500 is up 5.5%, the Small-cap Russell2000 is up 7.6% and the Nasdaq100 is up 7.8%. This sort of behavior is consistent with an environment where the riskier, more speculative, much higher beta Discretionary stocks are outperforming the safer, less risky and much lower beta Staples. [Read more…]