Below we have updated our charts of sector relative strength. In each chart, rising lines indicate periods where the sector is outperforming the S&P 500. Charts with red shading indicate that the sector has underperformed over the last year. Additionally, we have included red dots that highlight each of the Fed rate cuts since August, while black dots indicate Fed meetings where rates were left unchanged.
Over the last year, only four of these eleven sectors have underperformed the overall market. While it's no surprise to see Consumer Discretionary and Financials among the laggards, many would be surprised to see Technology on the underperforming list as well. Additionally, Telecom Service stocks have underperformed over the last twelve months, which is out of character for a sector that typically outperforms during weak economic conditions.
Over the last few weeks, there have been several key reversals in sector trends. After lagging for more than a year, the Consumer Discretionary sector is extremely close to showing net strength versus the S&P 500 over the last 52 weeks. Also, Financials have been showing an uptick in relative strength, although they remain well behind the strength of the Consumer Discretionary sector. Given that these sectors led us lower, it is encouraging to see that they are showing some improvement.
At the same time that the laggards are starting to lead, the former leaders are now lagging. The Energy and Materials sectors were both steady performers through the end of the second quarter, but once the Fed went on hold in late June, these sectors lost all of their upside momentum.
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