EC The Lead-Lag Report: Nearing Changes Everywhere

“Strength and growth come only through continuous effort and struggle.” – Napoleon Hill

Below is an assessment of the performance of some of the most important sectors and asset classes relative to each other, with an interpretation of what underlying market dynamics may be signaling about the future direction of risk-taking by investors. The below charts are all price ratios which show the underlying trend of the numerator relative to the denominator. A rising price ratio means the numerator is outperforming (up more/down less) the denominator.


Technology (XLK) – Market Leadership Continues

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Comments: Stronger than expected economic data from China gave the tech sector another boost this week pushing its lead over the S&P 500 this year to nearly 9%. Further global monetary easing and another successful round of Chinese fiscal stimulus look to provide a steady tailwind for this group.

Materials (XLB) – Struggling for Direction

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Comments: This sector has bounced around relative to the S&P 500 for much of the past six months but it’s safe to say that prospects for materials stocks have improved. Demand for things like new home construction and the materials involved with it are looking stronger and valuations remain reasonable. As cyclical stocks have remained in favor, XLB has beaten the S&P 500 by nearly 300 basis points over the past three weeks.

 Consumer Discretionary (XLY) – Riding Strength in Cyclicals

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Comments: A strong recovery in jobs and a possible economic bottom in China are pushing off recession fears and increasing demand for cyclicals. Low inflation, solid GDP growth, and an accommodative Fed are providing the perfect storm for investors to add risk to their portfolios and consumer discretionary companies are some of the biggest beneficiaries. Gas prices continue to rise and could hamper consumer spending over the high demand summer months.

Industrials (XLI) – Another Failed Breakout

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Comments: The industrial sector is still heavily influenced by Boeing and General Electric, both of which have been the recipients of bad news lately. Boeing is working through its very public 737 MAX issues while JP Morgan downgraded GE calling its rebound overdone. The industrial group is still beating the S&P 500 year-to-date but several instances of failing to carry through on short-term rallies suggests that momentum is diminishing.

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Disclosure: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer ...

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Moon Kil Woong 10 months ago Contributor's comment

Thanks for the sectoral graphics. It is amazing people aren't talking about healthcare's horrible performance more which is worse than manufacturing and commodities which gets a lot of coverage.

Terrence Howard 10 months ago Member's comment

I agree. Very surprising.