≈ Sector Rotation Basics. ≈
The S&P 500 hit its all-time high on September 21st, 2018. In the last 76 trading days the best performing sectors by percentage measured against the S&P were Utilities, Real Estate, Staples and Health Care.
Energy, Financials, Industrials, Technology and Materials were the weakest performers during this time frame.
11 of the 12 sectors lost during this period as Utilities was the only sector performing in the green.
While looking at this data, it’s interesting to note, that in the world of investing we call the performance of something like Staples and Healthcare as ‘relative strength’ even though they lost -5.58% and -6.75% respectively. Where does the strength come from?
Sector performance is generally measured against the overall performance of the market. So, when a sector only loses 5 or 6% and the broad market was down 11.3% during that time, they get labeled as ‘strong’ and there is a rotation into ‘defensive’ sectors like the ones named above.
More importantly, and what matters to your bottom line is the fact that 11 of 12 sectors were down, and 6 of them down more than 10% during the same time frame.
Sector rotation is interesting, but it’s a little odd to call something strong simply because it lost a little less than the market. Regardless, if you ever read a news article where the pundit is talking about relative strength, they’re probably measuring that against the average gain or loss of the broad market during that period.
Sector Rotation is something that can help you understand the dynamics of Institutional Investing and where they are moving their money over time. When money moves into more aggressive sectors, it generally indicates a willingness to take risk. When money is holding in areas that are labeled defensive in nature, it’s an indicator weakness in the markets.
Chart of the Day
The chart above measure the sector performance relative to the S&P 500 between 9/21/18 -1/10/18.
The chart above measures the raw performance of all sectors including the S&P 500 between 9/21/18 -1/10/18.
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