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Published: October 2, 2009
The market rebound, which began in March, has so far
increased the value of the S&P 500 by about +55%. Economic
indicators are still weak, but the market tends to lead the
recovery by several months.
Despite the worry, cyclical stocks -- those affected by the
economic cycle -- are up sharply. Financials are up +146%,
industrials are up +74%, consumer discretionary is up +70%, and
technology is up +55%. On the other side of the spectrum,
defensive stocks -- those generally thought to be immune from
the underlying economy's swings -- have underperformed.
Utilities, for example, are up just +30%. Staples are up +31%.
Health care is up +31%.
This is what the beginning of bull markets look like.
In the early stages, high-tech and industrial shares outperform.
As the bull gains legs, basic-industry stocks enter the picture.
At the peak, energy and metal companies outperform.
In bearish periods, consumer staples and service stocks
outperform. On the way down, it's utilities. Near the bottom,
financial and consumer cyclical stocks lead the pack.
During the past three months, the story has been largely the
same as it has since March. Financials have beat the S&P by 10.6
points, industrials by 6.5 points, and consumer discretionary by
4.7 points. All other sectors have lagged, although technology
hasn't lagged by much (-0.7 points).
If history means anything and the
bull is real, going forward cyclical
stocks will continue to outperform
the market and defensive stocks will
lag. That means you'll continue to
want to hold shares of companies in
industrial, consumer discretionary
and technology companies.
But in particular I think there's a
real opportunity in technology
because of how it has lagged other
cyclical sectors since March. Up
+54% since March, tech has performed
just slightly worse than the S&P
(+55%). That's unusual for this
stage of the market cycle, and that
could change quickly.
For broad coverage in this sector,
an ETF like the Technology SPDR
(NYSE: XLK) does the trick.
-- Anthony Haddad
Staff Writer
StreetAuthority.com |
